In recent years, there have been multiple shake-ups to corporation tax. With rates changing - and getting more complicated - since April this year, it’s now more important than ever to understand corporation tax and how it impacts your business. 

How Much Corporation Tax Do I Need to Pay?

Previously, corporation tax was paid at a flat rate. However, that all changed back in April 2023 and the rate you pay now depends on how much profit your company makes. Now, companies with taxable profits of under £50,000 will pay 19% whilst companies with taxable profits over £250,000 will pay 25%. 

So, what about the companies whose profits fall somewhere in between? 
For profits between £50,000 and £250,000 you pay the marginal rate of 26.5%. For example if your profits were £100,000 your tax bill would be

£50,000             x            19%                     £9,500

£50,000             x            26.5%                 £13,250

Total                                                              £22,750

So an effective rate of tax of 22.75%.

The company tax bill is payable 9 months and 1 day after the company year ends. 

It’s equally important to remember that physically paying tax on profits comes a long time after that money ever hits your accounts. Therefore, businesses must keep a close eye on cash flow and make sure they’re putting money aside in preparation for a hefty future tax bill.

Finally, there’s a difference between taxable profit and accounting profit. When it comes to taxable profit, you won’t be able to get tax relief from expenses such as entertaining costs and depreciation – but you are allowed to claim allowances on assets bought.

How can companies get smart about mitigating corporation tax increases?

One thing businesses will want to keep in mind is that, in most cases, you can claim tax relief on the full cost of fixed assets, for example a computer or machinery, that are necessary for the business to run. Companies investing in qualifying new equipment can benefit from helpful capital allowances. 

A final option for reducing your corporation tax bill? Paying pension contributions. If you’re the company director, then the company can make a contribution into your pension pot. As long as it’s part of your remuneration package, it is deductible for corporation tax - and can ultimately reduce your corporation tax bill.

Navigating Corporation Tax With Clarity 

Confused or concerned by all these corporation tax changes? Let us help! Here at Clarity, we have our fingers firmly on the pulse on ever-changing tax regulations. We can get your business prepared and give you the information you need to make smart, proactive decisions. Get in touch today to find out more!