What Is Corporation Tax?
If your business is a limited company it must pay Corporation Tax on its profits. These are profits both from trading and from the sale of any investments or assets. Currently, the rate is 19%. However, from April 2023 this will be increased to 25%*.
Limited companies, community clubs or co-operatives and foreign companies that have a UK branch or office all fall under this category.
What is changing?
The Prime Minister, Liz Truss, has decided that she will go ahead with her previously rejected increase to Corporation Tax. From the new tax year (6 April 2023), some limited companies will have to pay 25% in Corporation Tax (see below).
But this isn’t the first time there’s been a proposed change to Corporation Tax:
In March 2021 former chancellor Rishi Sunak said Corporation Tax would rise from 19% to 25% in April 2023
In July 2022, Truss said she would reverse Sunak's decision and keep Corporation Tax at 19%, to attract investment into the UK
On 23 September, the then-chancellor Kwasi Kwarteng announced Corporation Tax would stay at 19%
On 14 October, Liz Truss confirmed that Corporation Tax would indeed increase to 25%
But what do these changes mean for small businesses?
Even though the news has focused on the jump from 19% to 25%, this increase will actually change little for small businesses. This is because the government is introducing a small profit rate (SPR). This means the tax rate will be tiered rather than all businesses paying the same level of tax no matter their size.
If you run a business with profits under £50k you’ll continue to pay 19% tax rate on your profits. According to the government, this means about 1.4 million businesses will continue to pay either no Corporation Tax depending on their profits, or Corporation Tax at 19%.
For companies with profits between £50,000 and £250,000, you’ll be able to claim relief that bridges the gap between the two limits on your Corporation Tax return. There will be a gradually increased tax rate you pay as your profits increase.
Companies with profits over £250,000 will pay tax at the main rate (25%).
How do you pay Corporation Tax?
You need to sign into your business tax account to register for Corporation Tax. From there, follow the instructions to register your business.
According to HMRC, you’ll need:
Your company’s Government Gateway user ID and password to sign in
Your company’s 10-digit Unique Taxpayer Reference (UTR)
If you don’t have a UTR for your company, you need to register for one. This will then be posted to your company address by HMRC within 14 days of you registering your company with Companies House.
From there, you’ll need to keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay. The deadline to pay – or report if you have nothing to pay – is usually nine months after the end of your accounting period, according to HMRC. Your Company Tax Return will need to be filed 12 months after your accounting period.
*Correct as of 18 October 2022.
