The main rate of corporation tax increased in 2023, and as the months go by, more companies are starting to feel the pinch.

Combined with rising costs of supplies and uncertain economic forecasts, UK businesses find themselves navigating a challenging fiscal environment.

Here’s what’s changed as of the 2023 tax year, and how the new rates could affect your company.

New corporation tax rates from April 2023

As of 1 April 2023, the main rate of corporation tax is 25% – up from its previous rate of 19%. This main rate now applies to companies with profits over £250,000.

A small profits rate of 19% was introduced at the same time for companies with profits under £50,000.

Companies with profits between the two rates pay tax at the main rate, reduced by marginal relief.

How much corporation tax will you pay?

If your profits fall below the small profits threshold of £50,000, you’ll see no change in the rate of corporation tax you pay. If they’re above the £250,000 threshold for the main rate, you’ll see a 6 percentage point increase.

But things are a little more complicated if your profits fall somewhere between the two thresholds, as the increase in tax will vary due to marginal relief. As a general rule, the closer your profits are to £250,000, the higher your corporation tax rate will be – but you can use the Government’s marginal relief calculator or talk to us if you want a more specific estimate

According to HMRC’s estimates, around 1.4 million businesses will continue to pay either no corporation tax or corporation tax at 19% following the change.

New capital allowances in 2023

In the Spring Budget earlier this year, Chancellor Jeremy Hunt confirmed the corporation tax rise, but he also announced new reforms to capital allowances.

These reforms aim to spur business investment by offering relief on the purchase of qualifying plant and machinery.

The capital allowances available to companies now include:

• Full expensing: 100% first-year relief on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026.
• 50% first-year allowance on new special-rate (including long life) assets until 31 March 2026.

The annual investment allowance also remains in place at its current threshold, offering 100% first-year relief for plant and machinery investments up to £1 million. This is available for all businesses, not just companies.

If you’re purchasing equipment or machinery to use in your business, these reliefs could potentially help to balance out the increase in corporation tax.

How to adapt to higher corporation tax rates

There’s no way around a higher tax bill if you’re one of the companies affected by the increase – but there are a few things to consider that might help you to navigate the change.

• Budgeting and forecasting: With these new rates, it’s essential to revisit your financial forecasts and budgets. Businesses need to prepare for potential cashflow shifts and explore areas for operational savings.
• Reassess investments: With pressure on your finances, you might decide to delay non-essential investments. Bear in mind, though, that you could be eligible for capital allowances – seek professional advice to assess whether this could save you money.
• Better technology: Invest in technologies that offer efficiency and scalability, and can provide long-term return on investment. This includes tools for remote collaboration, project management and automation.
• Seek expert advice: Connect with accountants who can guide you through the nuances of these changes and provide tax-efficient strategies.

While a tax rise isn’t the best news for companies at a time of rising costs, planning ahead of your corporation tax bill can help you to bear the burden.

If you’re uncertain about the implications of the 2023 corporation tax changes or need advice on adapting effectively, get in touch.