Corporation Tax Increase: Slash the Cost with Past Losses?

2023 will see a massive Corporation Tax increase, but smart planning can spare you some of the losses.

Corporation Tax Increase
Corporation Tax Increase

(2 minute read)

Today’s top tip will explain:

  • The upcoming Corporation Tax hike
  • An alternative use for losses to boost your tax position

The Corporation Tax Increase

Corporation Tax is currently set at 19%.

This is a blanket rate that applies to all companies regardless of their profits.

However, business owners will face a significant Corporation Tax increase from April 2023 as rates rise by 6%.

The amount you pay is based on your profits:

Annual ProfitsCorporation Tax Rate
Up to £50,00019%
Between £50,000 and £250,00026.5%
Over £250,00025%

In practice, marginal rates mean that businesses will pay 19% on profits up to £50,000 with the rate steadily increasing until reaching the 25%.

Making the Most of Losses

Many business owners wrongfully assume that trading losses must be used to offset future profits. But this isn’t the case.

Although carrying forward losses in this way is common and generally considered good practice, there are other ways to use losses.

Instead of carrying your losses forward to use against profits in the same trade, you can make a claim to prevent your losses being used. You can then carry forward losses against total profits.

Disclaiming your losses means that you must later make a claim to use them later. You may disclaim all or part of your losses.

You can take advantage of this and wait until after the Corporation Tax increase to use your losses. This effectively allows you to offset more of your losses against profits. By doing this, you can offset losses at a rate of 25% rather than the current 19%.

A Corporation Tax Increase Plan for Everyone?

This strategy can be a great way to mitigate financial problems that may be caused by the Corporation Tax increase. However, it isn’t a one-size-fits all approach.

Cash-rich companies may be best suited for this approach as they’re better able to accommodate an immediate cost for longer-term rewards.

Other businesses could modify this approach by only disclaiming a portion of their losses for the future.

Some small businesses may struggle to implement this plan. But no matter the size or scale of your company, you should always discuss your plans with an expert first.

What now?

Thinking outside the box and employing this type of strategy is a great way to deal with changing tax legislation. However, although this strategy may seem simple it’s easy to get wrong.

If you want to make the most out of business losses, always seek out the advice of an experienced Tax Expert. Our team have years of experience in helping our clients navigate tax legislation while staying on HMRC’s good side.

If you’re looking for other ways to get set for the new tax year, check out our guide to end-of-year planning here!

Call us today at 01772 788200, or WhatsApp us out-of-hours at 07787 010190. Sending an e-mail is simple too, just fill out the short form below and we’ll get back to you!

Kind regards Ilyas