From 1^st April 2023, there will be a new corporation tax rate in the UK, and it’s going up to 25% for companies with profits over £250K. For companies with profits between £50K and £250K, there will be a tapered rate of tax applied. If you fall below £50K, then you’ll pay the old rate of 19%.

This is a significant change that could have a big impact on your business’s bottom line. If your company falls into this category, it’s important to start planning now for how this increase will affect your finances and cash flow.

Some businesses may consider restructuring or changing their operations to mitigate the impact of the tax increase, while others may need to explore new revenue streams or cost-cutting measures.

So let’s have a look at what this means for you.

Let’s say your company made a profit of £103K last year. With the current corporation tax rate of 19%, you would owe £19,570 in tax.

So from 1^st April, assuming you still have £103K profit, you’ll fall within this range, so you won’t be hit with the full 25% rate. Instead, you’ll be taxed as follows:

To work out how much tax you’ll owe, the first £50K of your profit will be taxed at the current 19% rate, which comes to £9,500. The remaining £53K will be taxed at the effective rate of 26.5% (the difference between 25% and 19%), which comes to £14,045. Added together, this comes to a total of £23,545 in corporation tax for the year.

So compared to what you would have paid under the old 19% rate, this is an increase of nearly £4K. Ouch!

But don’t worry, every business is unique, and there may be ways to reduce your tax bill. That’s why it’s always a good idea to chat to a financial pro to get tailored advice.

If you need help with tax planning, we’d love to hear from you: hello@opticsaccounting.co.uk