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Corporation Tax Changes 2023

The main corporation tax rate (CT) will jump from 19% to 25%, effective from 1 April 2023. Apart from the substantial increase in the tax burden to most companies, tax advisers should ensure that they are familiar with the mechanics of the tax calculation, particularly where groups of companies are involved, for those with accounting periods which straddle 1 April 2023, and the mechanics for the calculation of the CT charge for companies with augmented profits falling between £50,000 and £250,000.

For large or very large corporate groups within the scope of the QIPs regime, the issue of timing and cash flow could also be a significant additional factor to be considered. Finally, advisers should be wary of the knock-on effects of the increased tax rate from a planning perspective.

Planning aspects include:

  • It would be prudent for corporate groups to review their current group membership to determine where they sit for threshold purposes under the post-2023 rules.
  • Non-corporate ‘groups’ where there is common ownership across a number of singleton companies and/or mini OpCo/PropCo groups will need to consider the tax implications once the rules change this April. There will inevitably be some situations where rationalization to eliminate almost dormant companies or consolidate into a smaller number of group companies may be beneficial.
  • Accelerating activity so that income or gains fall within an accounting period that falls wholly or predominantly within the pre-April 2023 taxing period.
  • Equally and oppositely, there will be some circumstances where deferral of allowable expenditure to fall into periods where the tax deduction would be at 25% rather than 19% is beneficial. This will be particularly so where the expenditure may qualify for enhanced relief. With regard to capital expenditure, the position will be more neutral, because the capital allowances 130% super-deduction and the 50% special rate deduction will cease to apply to expenditures incurred on or after 1 April 2023.
  • The questions to consider over the most efficient use of corporation tax loss reliefs, in particular ‘sideways’ loss reliefs (available on trading losses and non-trading deficits for example), will become more complex. The previous rule of thumb was that it was better to make the sideways claim at the first opportunity to claim the relief as soon as possible. This may not always be the better option now, particularly given the greater flexibility in the use of CT brought forward losses since 1 April 2017, allied to the increased CT rates in later years. It will be more beneficial for companies between the upper and lower thresholds if losses can be targeted at profits falling within the marginal rates. As ever, there is no real substitute for sitting down and working through the possibilities in each case to determine the most efficient course of action for the client to adopt.
  • The new rates impact on profit withdrawal calculations in that there is an appreciable increase in the effective rate of tax when drawing profits out via distribution from April 2023. The effective rate of tax for higher and additional rate taxpayers on withdrawing post-April 2023 profits via a distribution will be higher than they would suffer on salary payments. And the differential in comparison to the effective rate borne by a self-employed business owner has increased, which may be a disincentive to sole traders/partnerships who are considering incorporation.

The CT regime is going through a period of significant upheaval. The ability to provide guidance and deliver timely advice on the imminent tax rate changes will be greatly appreciated by company owners and business managers, who have never been more in need of advisers than they are now.

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