What the upcoming rise in Corporation Tax could mean for your business

The new tax year is almost upon us and with it comes a 6% increase in Corporation Tax. This was announced by the then chancellor Rishi Sunak way back in March 2021, so it may have slipped the minds of some. However, from 06 April this year, the Corporation Tax for many businesses will increase from 19% to 25%.

This tax rise doesn’t apply to all businesses, so the following explains how the new rules work.

Corporation Tax rise

Whether or not your company will see a Corporation Tax increase after April depends on both the amount your business generates in non-ringfenced profits each year and the allowable expenses of your business.

The following shows how your businesses could be affected, and how severely.

• Businesses with more than £250,000 a year in non-ringfenced profits will see their Corporation Tax bill rise from 19% to 25%.
• Companies with profits between £50,000 and £250,000 will see a tapered increase of their tax bill.
• Businesses turning less than £50,000 in profit will see no change in their Corporation Tax bill.

If you fall in the middle bracket. Between £50,000 and £250,000, this useful IT Contracting Corporation Tax calculator will show how much your tax bill could rise next year.

In summary, if you run a small business, you may well not be affected. However, medium sized and larger businesses are likely to see either a tapered rise or the full 6% increase.

How to mitigate it

If your Corporation Tax bill is likely to increase after April, it makes sense to look for ways to bring your tax bill down overall.

One simple and effective way to do this is to pay as many employer pension contributions, and as many National Insurance contributions (NICs), as you can.

Employer pension contributions and NICs are seen as an “allowable expense” by HMRC – meaning when you pay into an employee’s pension, the amount you spend is usually deducted from your profits when it comes to calculating your Corporation Tax bill.

So matching employee pension and NIC contributions, or agreeing on a salary exchange with some key employees, could help mitigate the effects of the Corporation Tax rise.

As well as pension contributions and NICs, other allowable expenses include:

• Business insurance
• Stock bought with the purpose of resale
• Employee salaries
• Corporate travel expenses
• Training costs
• Accountancy fees.

Claiming these expenses when paying your Corporation Tax bill could reduce your liability and bring you peace of mind in the coming years.

How we can help

Even with plenty of time to prepare, dealing with a 6% tax rise could still be a concern to you - and, following on from the Covid-19 pandemic and cost of living crisis, which have both had an impact on businesses in recent years, you may wish to seek further guidance from your financial planner about this additional cost.

By working closely with us you could:

• Create a bespoke fiscal plan that incorporates the upcoming Corporation Tax rise
• Make the most of allowable expenses in order to mitigate your bill
• Review your expenditure and cut costs if and where necessary.

We can also help you with your personal wealth. There are several planned tax increases and allowance freezes applying to individuals as well as businesses in the coming year, including:

• The level at which earners will pay additional-rate (45%) Income Tax is decreasing from £150,000 to £125,140. This means, if you pay yourself a salary as a business owner, you may pay increased Income Tax from April onwards.
• The Capital Gains Tax (CGT) annual exemption is reducing from £12,300 to £6,000 in April, meaning your CGT bill could be higher in 2023/24.
• The Dividend Allowance is also decreasing from £2,000 to £1,000 in April, so you may pay higher Dividend Tax if you take them as part of your remuneration.

With all these changes, this may well be a good time to seek some financial advice.

Get in touch

To effectively plan for the impact of a rising Corporation Tax bill, and to update your own personal financial plan, simply get in touch today.

Please note

This article is for general information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning.

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