The New Corporation Tax Rate

Guide to understanding the new corporation tax rate

A Guide to Understanding the New Corporation Tax Ratecorporation tax changes

Are you a business owner? Do you have employees or associates? If so, then you’ve probably heard about the recent changes to the corporation tax rate. It’s important to understand these changes. This is to ensure that your business is compliant and paying the right amount of taxes. In this blog post, we’ll outline the changes to the corporation tax rate. We’ll also provide advice and guidance on how to apply them.

How it Differs from Existing System

The new system applies different rates of corporation tax depending on the level of profits made by a company. The lower threshold for the 19% rate applies when profits are between £0-£50,000. The upper threshold for a 25% rate applies when profits are above £250,000. For-profits between these two thresholds, marginal relief becomes applicable. This means that as profits increase from £50,000 up to £250,000 there is an increase in tax charge. There is also a reduction in tax charges if an accounting period is less than 12 months. Also if the associated companies involved pay corporation tax at higher rates.

How it Works

The new system works by calculating the total taxable profits across all associated companies. Then applying a single flat rate of corporation tax across all those companies. This means that if your business has more than one associated company, then you get taxed at the same rate regardless of individual profit levels. Additionally, if any of those companies have an accounting period of less than 12 months. Thus, taken into consideration when calculating the overall taxable profits across all those companies. Finally, if any associated company pays corporation tax at higher rates then this will also factor in. Which can result in an increase in overall tax charges.

Advice & Guidance

It’s important to establish exactly how many associates your business has. Then calculate what post-relief tax due would be under the new system before making any decisions. This will allow you to know how best to proceed with taxes going forward. Additionally, you should consider whether merging some associates might help. This could reduce overall charges and potentially save you money in the long run.

Changes to Corporation Taxes

Starting from 1 April 2023, corporation tax rates will no longer remain at a single flat rate of 19%. Instead, corporation taxes get based on the varying profits made by businesses. The higher their profits, the higher the corporation tax rate. This progressive system means that businesses making reasonable profits can expect corporation taxes to be in the range of 19 – 25%. Depending on their profit margin of course. So now it’s more important than ever for businesses to think strategically and lessen their tax burden when they can. So as to lower their corporation tax rate and makeup as much of their profits as possible.

The Lower Threshold

When it comes to dividing the lower threshold for the 19% rate amongst associated companies, it can get tricky. The lower threshold will take into account when businesses get taxed at this rate. Different rules may apply depending on your particular situation. There’s no one-size-fits-all solution here; the lower threshold for the 19% rate is calculated individually. Taking a variety of aspects into consideration. £50,000 remains the fixed lower threshold amount regardless of how many companies are associated with it. Meaning this is an important detail to remember when making calculations to remain compliant.

The Upper Threshold

Among different tax-related measures, one such measure stands out as important to company owners. The Upper Threshold for the 25% rate. This measure is dividing £250,000 by the number of associated companies. This ensures that mid-level business owners can enjoy lower tax rates. This Upper Threshold is quite high. Meaning that all or most businesses should be able to enjoy this rate. It’s an important feature of tax legislation and one which bears equal importance as other measures.

Marginal Relief

Marginal relief is often overlooked, but it can have huge implications for businesses. It’s essentially a tax allowance that results in lower taxes for profits earned within certain thresholds. For example, companies may be able to avoid higher taxation on profits made between the lowest and upper Marginal Relief thresholds. All dependent on the circumstances. Marginal Relief can make for an effective tax strategy over the long term. It should always be an option when it comes to calculating business income tax.

Your Accounting Period

Knowing your accounting period is important when understanding how thresholds and marginal relief. They are both calculated when dealing with taxes. If your accounting period is less than twelve months, then the thresholds and marginal reliefs you qualify for will reduce. This is to make sure the rules still apply accurately. So it’s best to take into account accounting periods when filing taxes. This means you’ll need to be more careful in keeping track of where you’re at with regard to accounting periods. Especially when filing taxes.
The Tax Season
Tax season can be fraught with worry and stress, and the taxman has pushed the boundaries further. Tax charges may be drastically increased if profits exceed a certain upper threshold. Even more unreasonably, associated companies may also face tax hikes. It’s no surprise that this news has come as quite a shock to many taxpayers! Thankfully tax advisors are on hand to help unravel the complexities of any tax changes. Enabling businesses to stay up-to-date on their tax obligations.
Extra Having an Advisor to Deal With Post-Relief Tax
Having an adviser on hand when dealing with post-relief tax can be a huge asset. They can help you establish exactly how many associates you need to best meet the post-relief tax charge. All while still keeping costs low. Alternatively, they can suggest ways of merging some associates in order to reduce the post-relief tax due. A qualified financial adviser will be able to make advice that best suits your situation. This advice will also bear in mind recent changes to government regulations. Being advised well ahead of when post-relief taxes are due can be invaluable!


Understanding the new changes to corporation tax rates isn’t easy. However, it’s important for business owners like yourself to get familiar with them. To remain compliant and ensure that your business pays what it owes while still keeping costs down where possible. We hope this guide helps you better understand these changes and provides some useful advice and guidance. I hope this blog helps you know how best to proceed with taxes going forward!
Good luck!
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