Changes to corporation tax how will this affect you?

20th November 2024

You may be aware that from the first of April 2023 HMRC have made some changes to the corporation tax rates and how it is calculated.

These changes are a little more complex than just an increase in the rates, so we wanted to simplify the changes for all our customers 😊

The new corporation tax rate

From 01/04/2023, the corporation tax percentage increases from 19% of taxable profits to 25%, and HMRC give tapered tax relief for those with profits below £250,000.00. We have simplified this, categorising your business into 1 of 3 groups:

1. For companies that have annual profits between £0 - £50,000, your corporation tax rate will remain at 19%, and the increased rate will not affect your business.
2. For companies that have annual profits over £250,000, your new corporation tax rate will be 25% on all of your profits.
3. For companies that have annual profits between £50,000 - £250,000, your corporation tax bill will be calculated based on a hybrid rate between 19% - 25%.

The hybrid percentage increases in line with your profit, meaning that the closer you are to the £250,000 threshold, the higher your hybrid percentage will be.

Can’t I just create multiple business to split my profits?

To combat the possibility of businesses creating multiple companies to pay at the lower tax bands, the thresholds are allocated equally across all companies operated by any “connected” owners. So, for instance, if you own 4 Limited companies, the £50,000 threshold (19% tax) will be spread equally over all four companies. Even if 3 of them are making a loss, you would still be required to pay corporation tax at the hybrid rate as soon as the one profitable company passed £12,500 of taxable profit. These rules apply to any company which you “control”, even companies which are making a loss, or unable to use their full 19% profit allowance.

So what does this mean for my companies?

A lot of companies are not affected by these changes. For companies that are affected, there is often a tendency to over-react when HMRC increase taxes. If you have a well-structured and profitable business, it could be detrimental to you to completely restructure your companies. If you are a director in a “suite” of companies which have minimal trade, then it may be suitable to review your position. We also suggest considering the implication of these changes before forming any additional companies.  

If you wish to discuss your current company structure or your plans for the future, please contact our partners at Walton Accountancy who can give you free support and advice. They are contactable on 02392 593917.