Corporation Tax Archives

Corporation Tax rates

The Government has confirmed that the rates of Corporation Tax will remain unchanged, which means that from April 2024, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

Capital allowances

The full expensing rules for companies allow a 100% write off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is unused and not second hand. The rules were originally designed to be effective for expenditure incurred on or after 1 April 2023 but before 1 April 2026. Similar rules apply to integral features and long life assets at a rate of 50%. The Government announced in the Autumn Statement 2023 that both allowances will be made permanent. The Government is to publish draft legislation for consultation to help consider any potential extension to include plant and machinery for leasing. The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

Research and Development (R&D) relief

As announced in the Autumn Statement 2023, the existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme. The rate under the merged scheme will be set at the current RDEC rate of 20%.

The changes also provide additional relief for loss-making R&D intensive SMEs through a higher rate of payable tax credit from April 2023, as a feature of the existing SME scheme. Those entitled to this higher rate would, from April 2024, continue to claim under rules similar to the current SME scheme rather than under the new RDEC scheme.

A number of other changes will apply to the new regime from April 2024, including that R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. Further action may be needed to reduce the unacceptably high levels of non-compliance with the R&D rules and HMRC will be publishing a compliance action plan.

For more on how the Spring Budget announcements could affect your business, get in touch with Mark Baycroft, Partner, or a member of the Business Tax team.

How much Corporation Tax do companies pay?

As of 1 April 2023, the main rate of Corporation Tax has increased to 25% for companies with profits exceeding £250,000. However, companies with annual profits below £50,000 will still enjoy the previous rate of 19%, also known as the ‘small profits rate’, with a marginal rate applying between those profit limits.

Associated companies and Corporation Tax

One noteworthy change to highlight, again, is the reintroduction of associated companies, as the above profit limits are divided by the number of associated companies. This affects businesses with common control, substantial trading interdependence, or shared premises. For example, if a husband and wife each own separate companies that engage in significant commercial activities with each other, they will be considered associated. Consequently, the profit limits mentioned earlier will need to be divided by two for tax calculation purposes.

Quarterly instalments for large companies

For large companies, quarterly instalment payments come into play. Large companies are considered as those with profits exceeding £1.5 million, factoring in the number of associated companies. Fortunately, there is a one-year grace period for newly large companies, provided their profits remain under £10 million. Quarterly instalments must be paid on specific dates throughout the current and following year, even though the exact annual profits may not be known at the time of payment.

Quarterly instalments for very large companies

Very large companies, with profits exceeding £20 million, do not receive a grace period. They are required to make quarterly instalment payments immediately. This means paying all Corporation Tax before the end of their fiscal year, with interest adjustments almost inevitable. Precision in profit forecasting becomes crucial for these entities to minimise interest.

What are the current Corporation Tax interest rates?

There has been a significant increase in interest rates for underpaid quarterly instalments, rising from 1.1% in March 2020 to 6.25% as of August 2023. Companies not subject to quarterly instalments, or those who delay payment for more than nine months after their year-end, also face higher interest rates, now at 7.75% as of August 2023, up from 2.75% in March 2020. On the positive side, HMRC interest rates are 5% for overpaid quarterly instalments and 4.25% for repayments of Corporation Tax. The interest payable for late payment of Corporation Tax has significantly increased over the years, emphasising the importance of timely payments.

What does these Corporation Tax changes mean for businesses?

In conclusion, the evolving landscape of Corporation Tax rates and payment schedules are important to keep track of. It underlines the need for businesses to stay informed and adapt their financial strategies accordingly. These changes can have a substantial impact on a company’s cash flow and overall financial health.

To discuss the impact of Corporation Tax on your business, please contact Mark Baycroft, Business Tax Partner, or a member of our Business Tax team.

Tag: Corporation Tax

Spring Budget 2024 – updates for businesses