UK Corporation Tax Rise 2023 on Small Businesses

In 2021, the UK Government announced a change in corporation tax. Currently, there is a flat rate of 19%, but this will change as of April 2023. Knowing the corporation tax rise for 2023 is a must for businesses across the UK. See how it will affect your small business by reading on.

What is corporation tax in the UK?

Corporation tax in the UK is the main tax that a limited company must pay. It is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The amount of corporation tax a company pays is based on the annual profits.

What is the UK corporation tax rise 2023?

From April 2023, businesses that profit £250,000 or more in the UK can expect a corporation tax rise to 25%. The previous UK corporation tax was 19%, which will stay the same if your small business profits less than £50,000 for the fiscal tax year. There is a system of marginal relief.

What is marginal relief?

According to the UK Gov site, Marginal relief allows you to reduce your corporation tax bill if your small business profits more than £50,000 but less than £250,000 in the fiscal tax year. It gives a gradual increase to corporation tax which means you could reduce the 25% main rate – the tax rate will be between 19% and 25%.

From April 2023 with the corporation tax rises, your business can fall into one of three categories:

  • Small Profit Rate: For taxable profits at or below £50,000, tax rate will be 19%
  • Main Rate: For taxable profits above £250,000, the tax rate will be 25%. In this threshold, this includes a 25% tax on profits below £250,000.
  • Marginal Small Companies Relief: if profits are £50,000 and £250,000, then the main rate of 25% applies but you can be eligible for marginal relief to reduce the 25%.

Am I eligible for marginal relief under the corporation tax rise 2023?

To be eligible for marginal relief within the corporation tax rise in the UK, your business has to earn taxable profits between £50,000 and £250,000. If your business exceeds £250,000 in taxable profits, you will not be eligible for marginal relief.

How will corporation tax rise affect small businesses?

If your small business earns profits at or less than £50,000 annually, the current tax, which is 19%, will still apply to you. If you earn more than this, (up to £250,000) you’re eligible for the marginal relief system noted above. It is possible that many small businesses will end up paying more in tax under this new system.

If you’re unsure how much marginal relief you are eligible for, you can use the UK Gov Marginal Relief calculator.

How does the corporation tax rise 2023 affect me if my company is an associated company?

The tax rise will still affect your company, but the tax will be divided by the associated companies. For example, if you have 5 associated companies, the lower threshold will be reduced from £50,000 to £10,000, and the upper threshold will be reduced from £250,000 to £50,000.

Note that, to HMRC, an associated company is characterised by:

  • One of the companies having control of the other
  • The other companies being controlled by the same people/companies

We hope this guide on corporation tax rise in the UK was helpful. Of course, the advice above is generic so, if you have any further questions or wish to make an enquiry about how it affects you, make sure to contact us.

Next, see our article on self-employed tax relief for more information.