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Corporation Tax to rise to 25%

3rd March 2021

The rate of Corporation Tax will increase by 6% from 19% to 25% from 1 April 2023.

Although this will be the first increase in the rate of the tax since George Osborne reduced the rate to 19%, the government is keen to assert that even with the announced increase the rate will still be the lowest rate in the G7.

Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19%.

A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.

Creating two rates of corporation tax will create complexity and avoidance issues at the margin between small/large companies.

The old associated company rules scrapped in April 2015 will return (presumably from April 2023) to catch more companies. This will also affect companies that pay corporation tax via the quarterly instalment scheme.

The economic benefits of taking dividends instead of salary are almost wiped out by this rate increase.

Corporation tax rates

  Financial year 2020-21 Financial year 2021-22 Financial year 2022-23 Financial year 2023-24
Main rate 19% 19% 19% 25%
Small profits rate N/A N/A N/A 19%
Lower threshold N/A N/A N/A £50,000
Upper threshold N/A N/A N/A £250,000

The counter the increase, the government is also bringing in a Super Deduction of 130% for certain capital expenditure.

There will also be enhanced loss carry back rules to enable trading losses (with a £2m cap) to be carried back from the normal one year to three years.

Government measures in place to support businesses and workers during the coronavirus pandemic can be found in our Business after COVID-19: Transition Knowledge Hub.

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