One major announcement from the March 2021 Budget was that from April 2023 there will be an increase in Corporation Tax. So what does this mean to you and your business?
In this blog we explore what’s changing, and how you could be affected.
Corporation Tax – what is it?
In a nutshell, it’s a levy on your company’s profits, which ultimately is a charge on any profits left in your company once expenses (including your salary) have been deducted from your company’s turnover. So for example, if your company’s turnover was £150,000 and your expenses totaled £80,000, you’d need to pay Corporation Tax on the remaining £70,000. The current rate of CT is 19%.
When is CT due?
Corporation Tax payments need to be made within nine months and one day from your company’s yearend. You must also file a CT600 tax return annually, 12 months from your company’s yearend date. If you miss any of these dates you’ll be subject to penalties from HRMC, or possibly even an increase in your Corporation Tax bill.
What changes are coming into play?
In the Budget, it was confirmed that CT will be increasing from 19% to 25% from April 2023, with a tapered relief for those whose company profits fall between £50,000 and £250,000. If your company’s profits are below £50,000 you’ll be subject to the new ‘small profits rate’ of 19%.
Why has the increase been introduced?
Corporation Tax has remained at a low rate of 19% for a while, and as a direct result of the financial support the government provided businesses during the Covid-19 pandemic (£100 billion to be exact!), then Chancellor of the Exchequer Rishi Sunak decided that a Corporation Tax increase would be the best way to win back some of that money. In an effort to aid in the UK’s economic recovery, this increase in tax is the government’s way of ensuring UK businesses ‘give back’ what they borrowed.
What’s the predicted effect on Limited Company contractors?
If your Limited Company’s profits remain below £50,000 then you’ll remain unaffected by the increase, as you haven’t reached the threshold for higher tax. If your company profits are between £50,001 and £250,000 you’ll be subject to the tapered relief of tax, with 25% being the greatest amount of tax you can expect to pay on your profits.
How can Thanet Bookkeeping help?
Tax is tough, and it’s so easy to make a mistake, that’s why it’s best to leave it up to the experts. Thanet Bookkeeping can help to ensure you’re paying the exact amount of tax and not a penny more. If this sounds like the type of support you need to be a contracting or freelancing success get in touch today.