Corporation tax for small businesses
Guest Blog: Financial Advisor, Matt Pidd shares insights and advice
In his 2023 Spring Budget, Jeremy Hunt confirmed that the top rate of Corporation Tax for businesses would increase from 19% to 25%, effective from April 2023.
However, the way in which this increase is applied has a significant impact on SMEs with profits before tax of between £50,000 and £250,000 as follows;
- Where annual profits are up to £50,000, these continue to be taxed at the rate of 19%.
- Where annual profits exceed £250,000, these are taxed at 25% in their entirety.
- Most significantly, annual profits between £50,000 and £250,000 are taxed on a sliding scale, between 19% and 25%, but on the total profit, not just the amount over £50,000.
- The impact of this is that any additional profit over £50,000, and up to £250,000, is taxed at a rate of 26.5%, as shown below;
| Annual Profits | Corporation Tax | Marginal Profit | Marginal Tax | Marginal Tax Rate |
| £50,000 | £9,500 | £50,000 | £9,500 | 19.0% |
| £150,000 | £36,000 | £100,000 | £26,500 | 26.5% |
| £250,000 | £62,500 | £100,000 | £26,500 | 26.5% |
| £350,000 | £87,500 | £100,000 | £25,000 | 25.0% |
This increase in the marginal tax rate increases the Corporation Tax burden for an SME by £750 for every £10,000 of additional profit over £50,000, up to £250,000.
Where profits are £250,000, this amounts to an additional £15,000 per year, so it is worth understanding the impact of these changes on overall cashflow.
In addition, when these increases are taken together with the reduction to the dividend allowance, the increase in the dividend tax rate and, for those affected, the reduction in the additional rate tax threshold, together with the raising of the pension limits, it is especially important for business owners to review their “benefit extraction” strategies. In other words, the relative merits of dividends, salary/bonus and pension contributions, as these may have changed since they were originally set up.
Matt Pidd is Principal at Tarporley Wealth Management an Associate Partner Practice of St. James’s Place Wealth Management.
Tarporley Wealth Management provides high quality financial advice, in a friendly yet professional manner. They develop creative solutions and strategies for the changing financial requirements, providing financial peace of mind.
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The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependant in individual circumstances.
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SJP Approved 7/6/2023
