UK: Changes in Corporation Tax from the last Budget

Corporation Tax Rate Changes from April 2023 

For the Financial Year beginning on 1 April 2022, there are no changes to the Corporation Tax Rate, which remains at 19%. 

From the Financial Year beginning on 1 April 2023, the following rates of UK Corporation Rate Tax will apply:

For companies with an annual profit of £50,000 or less, there are no changes to the Corporation Tax Rate, which will continue to be 19%. Companies with an annual profit of £250,000 and above will be liable to Corporation Tax at the Main Rate of 25%. 

Companies with a profit of between £50,000 and £250,000 would be subject to Corporation Tax at the Main Rate of 25%, but with a deduction known as Marginal Relief. The amount of Marginal Relief will depend upon the amount of profits that the company has in a period. The higher the profits are between £50,000 and £250,000, the less marginal relief a company will be entitled to receive. 

The company profit to determine the rate of corporation tax will be adjusted when the accounting period is not 12 months. For example, a company with an accounting period of 18 months will be subject to 19% Corporation Tax for profits up to £75,000.

Another point to consider is that accounting periods which straddle 1 April 2023 (i.e. the date of Corporation Tax rate change) will be subject to both rates. 

Capital Allowances 

A further budget announcement was that companies that invest in qualifying new plant and machinery between 1 April 2021 and 31 March 2023, will be entitled to Capital Allowances of 130%. The relief of 130% of the investment is known as a super deduction and provides companies with an additional 30% of tax relief, in comparison to the cost of the asset. 

Furthermore, investments in this same period assets that qualify for special rate relief qualify for 50% First Year Allowance (FYA). 

Under this measure, investments in main-rate assets will be relieved by a 130% super-deduction, whilst investments in assets qualifying for special rate relief will benefit from a 50% first-year allowance. 

Carry back of trading losses – temporary extension 

Currently, companies are able to carry back an unlimited amount of trading losses in an accounting period against total profits of the previous 12 months. This is after the trading losses have been used against any type of profits income in the period in which the losses were incurred. 

A further relief has been provided in the Budget of 3 March 2021. Unused trading losses from the tax years 2021/22 and 2020/21, can be carried back a further two years. Therefore, the total available carry back for losses in these periods is for the previous three years. 

However, there is a limit for the losses available to carry back against profits of the earlier 2 years. There is a limit of £2,000,000 of losses in any 12-month accounting period, that can be carried back to offset against profits in the earlier 2 years. The £2,000,000 limit applies on a group basis, for companies that are part of a group.