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Corporation Tax increase in April 2023 and marginal relief explained

Corporation Tax
Corporation Tax increase in April 2023 and marginal relief explained
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Corporation Tax from 1st April 2023, Corporation Tax will increase from 19% to 25%, unless you qualify for the Small Profit Rate or Marginal Rate Relief

Increased Corporation Tax from 1st April 2023

As you may already know there are some changes taking place in terms of corporation tax rates for the Financial Year beginning 1 April 2023. The main corporation tax rate is increasing significantly from 19% to 25%. Hence, this article aims to highlighting who will qualify for Marginal Rate Relief and Small Profit Rate and who will pay the increased corporation tax.

Small Profit Rate - 19%

Taxable profits below £50K

To begin with, the rate of tax payable will depend on the level of taxable profits for each fiscal year. For smaller companies, or in other words – companies with taxable profits of £50,000 or less will pay corporation tax at 19%. This rate will be used as a 'small profits rate’.

Main Rate, but reduced by Marginal Rate Relief

Taxable profits between £50K and £250K

Any Companies with Profits between the margin of £50K to £250K will pay the increased tax rate of 25%, however this will be reduced by marginal rate relief.  This  Relief is calculated depending on your profits, it is on a sliding scale the closer your profits get to £250K the smaller the relief.

Main Rate

Taxable profits above £250K

Lastly, companies with taxable profits of £250K or more will pay 25% increased corporation tax rate with no marginal rate relief available.

What is Marginal Rate Relief?

Marginal rate relief allows eligible companies to reduce their rate of tax from 25%, as it provides a gradual increase in tax between small profit rate and main rate. If the accounting period is shorter than 12 months, the rate relief is reduced on a pro-rata basis. 

If your company has associated companies, the marginal relief is reduced according to the number of associated companies:

For instance, if your company has 2 associated companies - the lower and upper limits for marginal relief are divided by 3:

  • £50K Lower limit divided by 3 = £16,997
  • £250K Upper limit divided by 3 = £83,333

It is important to know that not all companies are eligible to claim marginal relief. If your company is a close investment holding company or if your company is a non-UK resident company, then the relief cannot be claimed.

How to Claim Marginal Relief

The upcoming change looks a bit overwhelming, however our software will do the hard work for you! You will just have to fill your company’ figures in the corporation tax return CT600 in your Easy Digital account, then our software will calculate the applicable small profit rate or marginal relief rate percentage of corporation tax for your company.

The tax rise takes effect from the 1st April 2023, if your tax year straddles this date, meaning part of your tax year is in the period before the tax rise takes place, your profits will be apportioned over the period to ensure only the days after 1st April are taxed at the higher rate if applicable.

Other changes that will affect SMEs are the changes to capital allowances with the ending of the super-deduction allowance and if you carry out Research and development, the reduction in the enhancement and tax credit rate.

Author: Lyubka Rizova

Lyubka is our Head of Desk specialising in Small and Micro Accounting and Corporation Tax. She holds a First class Degree in Accounting and Finance and is an active contributor to our knowledge base articles. When not delivering a first class service she likes to exercise and travel.

Read All articles by Lyubka Rizova
This article is information only and has been prepared for general guidance on matters of interest only, and does not constitute legal, accounting, tax, investment or other professional advice or services. You should not act upon the information contained in this article without obtaining specific professional or legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this article, and, to the extent permitted by law, Comdal Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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