UK corporation tax rates: what is changing? (2023)

December 16, 2022

UK corporation tax rates are set to change in April 2023. Earlier this year, The British government confirmed that they plan to go ahead with a corporate tax rate increase to 25%, set to come into effect on April 1, 2023. 

 

But there needs to be more clarity around the change. It has been proposed, scrapped, and then brought back, which has left business owners confused about what the next tax year will hold.

 

In this article, we will demystify the tax increase and help you understand if and how you will be affected by it.

What is the new UK corporation tax rate?

The current UK corporation tax rate is 19% (as of December 2022), but from the next tax year, starting on April 1, 2023, this will increase by 6% to 25%.

Who is affected by the change?

These new tax rates will apply to any business with profits of £250,000 or more per year. The legislation covering this increase is set up so that smaller businesses, with earnings up to £50,000, will continue to pay the previous, lower corporation tax rate of 19%.

If your business makes a profit between £50,000 - £25,000, you will be subject to a tapered rate.

Why is there going to be a change to UK corporation tax?

There has been a lot of confusion around the corporate tax rate increases that have left business owners feeling uncertain. 

 

A mini-budget was created in September, including a corporate tax increase and many others changes. However, the new UK chancellor, Jeremy Hunt, rolled back almost all of the measures laid out in Liz Truss’s mini-budget, and one of the first tax cuts to go was the plan to scrap a corporation tax rise.

 

The mini-budget created political turmoil in the country and had a negative impact on the public perception of the government. The markets are uncertain, and many business owners have been concerned about the changes in tax policy. 

 

Jeremy Hunt's U-turn on the budget had done little to quell anxiety in the markets when it was announced on October 17.

 

For business owners, the problem with corporation tax has been uncertainty. Not knowing if it will go up or not created an atmosphere of anxiety and has made it difficult for many to do their projections and planning for the coming year.  

 

Businesses, especially those who earn £250,000 in profits per year, are rightly concerned about the increase as it will reduce profits. The Confederation of British Industry (CBI) director general, Tony Danker, said that the government should “balance any rise in corporation tax with investment allowances' ' to “help achieve both stability and investment”.

 

Investment allowances are tax relief for businesses and are used when buying work equipment. In 2008, the UK government introduced the Annual Investment Allowance (AIA), which allows businesses to deduct up to £1 million per tax year from taxable profits for equipment purchases. This initiative was used to stimulate economic growth, and many businesses benefited from it. A rise in the limit that businesses can deduct could offset some of the additional tax that businesses will pay – but would only be beneficial for larger businesses that spend a lot on equipment.

To sum up

Corporation tax in the UK is set to rise from April 1 next year. If your business earns more than £50,000 in profits per year, you will be affected. How much you will pay will depend on how much profit you make. Companies with over £250,000 in profit will pay the new higher 25% tax rate. If you make between £50,000 and £250,000, your rate will be tapered.