Get ready for Corporation tax changes

From the beginning of the next financial year Corporation Tax is going up for most companies from 19% to 25% of profits. However if your profit is below £250,000 special rules apply.

Companies with taxable profit below £50,000

The tax on augmented profit will be 19% – this is the same as the current rate

Companies with taxable profit over £250,000

The tax on augmented profit will be 25% – this means 6% more of total share of profit that goes in tax, and 31% increase

Companies with profit between £50,000 and £250,000

Marginal relief will apply at 1.5% – this is known as the ‘marginal relief fraction’.

You can calculate how much relief you get using this formula:

(Adjusted upper limit – taxable profit including distributions) × (taxable profit ÷ taxable profit including distributions) × (Marginal Relief fraction)

Your accountant will be able to advise you about how much your tax will be and make sure you stick to the correct rules. However you may find it useful to use the HMRC calculator for ‘what if’ analysis to help you plan ahead – a link is here

A special note if your Company is associated with another company

If two companies are associated they are known as ‘close companies’. This is for example if they have the same or similar ownership or one owns another. WHere this is the case the thresholds above as are split between the companies.

For example, if your company has 1 associated company, the limits are divided by 2. The lower limit becomes £25,000 and the upper limit becomes £125,000.

Next steps

If you have any questions about how this might affect you and you are a Holy Brook client please do get in touch

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