With effect from April 2023 the main rate of Corporation Tax is due to increase to 25% for companies with taxable profits in excess of £250,000 per annum. Companies with profits up to £50,000 per annum will continue to pay Corporation Tax at 19%.
For companies with profits between £50,000 and £250,000 there will be an effective marginal rate of 26.5%.
So, what can be done to mitigate the effect of this tax increase?
Bring Income Forward
With the Corporation tax rate increasing significantly from 1 April 2023, you might want to consider accelerating the recognition of income so that it can be taxed at the current 19%.
You will have to be aware of the strict accounting rules around the timing of income recognition and if you are thinking accelerating income you should speak to your accountant first.
If you have legitimate business reasons to defer expenditure until after 1 April 2023 you will receive tax relief at the higher rates.
If you are considering investing in a large piece of equipment or a company re-brand for instance waiting until after April could give significant benefits.
Deferring expenditure to attract relief at a higher rate will have to be balanced against the reduction in the Annual Investment Allowance. Up until 31 March 2023 up to £1 million of capital expenditure can attract a 100% first year allowance against taxes and may even qualify for the 30% super deduction. From 1 April 2023 the £1million limit reduces to £200,000 and the super deduction will be withdrawn.
If you are considering significant capital expenditure in the next year or so you should talk to your accountant to carry out several calculations to decide the optimal timing.
If you make pension contributions through your company you may want to think about doing this after 1 April 2023 to attract greater tax relief. There will be other considerations when making pension contributions such as the personal tax year into which such payment falls, to ensure personal contribution limits are not exceeded. Your accountant and financial advisor should be able to assist.
Use up your tax losses
Consider whether it would be better to carry forward losses against taxable profits made in future accounting periods rather than being set against current profits or carried back against prior years. This could relieve losses at as much as 26.5% rather than 19%. Your accountant will be able to tell you if this is an option.
If you are considering selling a capital asset at a gain, such as a company owned property, consider making the sale in a tax accounting period before 31 March 2023, so the gain is taxed at 19% rather than the higher rates.