Corporation Tax Rise: Beat the Tax Hike

Although the Corporation Tax rise won’t officially hit until next year, some businesses are already feeling the pressure. Here’s how to plan for 2023.

Corporation Tax Rise
Corporation Tax Rise

(3 minute read)

Today’s tip will explain:

  • What the Corporation Tax rise means for you
  • Cutting the costs before they’re incurred

What’s New?

Rishi Sunak announced several huge changes to tax legislation through the Spring Statement back in 2021. Among these was a significant Corporation Tax rise.

As a result, you may already know that Corporation Tax is rising from 19% to 25%.

To be more exact, profits over £50,000 will be taxed at 26.5% (with marginal relief available) and profits over £250,000 will be taxed at 25%.

HMRC estimate that 2 million businesses will be hit by the tax raise either directly or indirectly (through retraining with the new legislation).

These changes don’t take effect until April 2023 but will start impacting businesses within the next several months, depending on when their accounting period starts.

Beating the Corporation Tax Rise

The often-accepted wisdom when it comes to tax is; “if you can delay it, you should delay it.”

However, this may not be the best option right now. In fact, you might benefit from paying sooner rather than later.

It might sound strange to suggest accelerating profits to pay tax sooner, but with the tax bill due to rise, doing so could save you money in the long-term.

Simply put, accelerating your profits means you pay tax at 19% on your profits over £250,000 now rather than at 25% later. If you’re in the position to do so, this could be a useful tax strategy.

Let’s say you earn profits of £100,000 within the 25% tax band. If the profits aren’t realised until after the tax hike, you’ll be paying £25,000 in tax. But if you can speed up your profits and pay before the Corporation Tax rise, you’re only liable for £19,000. That’s a £6,000 saving.

Not all companies can accelerate their profits, but for those who can, you could improve your tax position in the future by taking a smaller hit in the present.

One Size Fits All?

Governments have been lowering the main rate consistently since the ‘70s and marginal relief hasn’t been a feature of Corporation Tax since 2014, so this change bucks the trend significantly.

Whether you can, or should, accelerate your profits is a complex question that depends on understanding your business fully. There’s a plethora of factors at work.

Some businesses may still find that delaying tax obligations works best whilst others will benefit from changing their approach. However, in all cases, you should make sure to investigate all options before settling on a tax strategy.

Contact us at 01772 788200 (or WhatsApp 07787 010190 out-of-hours) to talk your tax strategy through with our team of experts. We have years of experience in guiding our clients towards tax efficiency.

Kind regards Ilyas