The HMRC has just announced a major overhaul to the UK’s corporation tax system, with significant implications for businesses of all sizes. So brace yourself as the tax rate is set to increase to its highest level in decades.
Corporation Tax Update in the UK: 2023/2024 Changes
As we move further into 2023, the UK government has announced some significant changes to the country’s corporation tax update that are set to effect from 1 April 2023.
These changes are part of a broader effort to boost the country’s economy and promote investment in the wake of the COVID-19 pandemic.
While some of the changes may be unsettling for businesses, particularly those subject to the new higher tax rate, there are also opportunities for small businesses to benefit from new tax relief schemes.
In this blog, we’ll delve into the details of the upcoming corporation tax update and explore how businesses can prepare themselves for the impact. So keep reading until the end to get ready for another UK tax year!
Overview of UK Corporation Tax Update
Before diving into the details, let’s first provide a brief overview of corporation tax in the UK. Corporation tax is levied on the profits of limited companies and some other organizations, such as clubs, cooperatives, and unincorporated associations.
The UK government determines the corporation tax update rate, and is subject to change each fiscal year.
In the 2023/2024 fiscal year, significant changes to corporation tax rates and policies have been announced, aimed at boosting the economy, encouraging investment, and ensuring that businesses pay their fair share of tax.
These changes will affect both large enterprises and SMEs, making companies need to understand the implications and take appropriate action.
Key Changes in Corporation Tax Rates
The most notable UK corporation tax update for 2023/2024 is the increase in the main tax rate. While the rate had previously been set at 19%, it has now been increased to 25% for companies with profits over £250,000.
This change represents a significant shift and could considerably impact larger enterprises.
However, it’s essential to note that a tapered rate system has been introduced, with the tax rate rising gradually between the previous rate of 19% and the new rate of 25%.
Companies with profits between £50,000 and £250,000 will be subject to this tapered rate, ensuring that smaller businesses are not disproportionately affected.
Impact on Large Enterprises
The increase in the main corporation tax rate will significantly affect large enterprises with profits exceeding £250,000.
While these companies will still enjoy the UK’s relatively competitive corporation tax rate compared to other countries, they must account for this increased tax burden in their financial planning.
This change may also have implications for multinational companies operating in the UK, as the higher tax rate may impact their decisions on where to locate their operations or invest capital. This could lead to a shift in investment patterns and even job creation.
Impact on Small and Medium Enterprises (SMEs)
SMEs, defined as companies with profits below £250,000, will experience a more nuanced impact from the 2023/2024 corporation tax update.
Those with profits below £50,000 will continue to be subject to the 19% corporation tax rate, providing some relief for the smallest businesses.
However, SMEs with profits between £50,000 and £250,000 will face a tapered rate, with the tax rate increasing gradually between 19% and 25%.
This tiered approach ensures that SMEs are able to handle the tax increase but will still need to adjust their financial planning and strategy to accommodate the new tax landscape.
For guidance on tax computation and compliance, seek professional help from a tax advisor or accountant.
Changes in Tax Relief and Incentives
The corporation tax update has also brought changes to tax relief and incentives available to UK businesses. Some of the most significant changes include:
The super-deduction, introduced in the 2021 budget, allows companies to claim a 130% capital allowance on qualifying plant and machinery investments. This incentive has been extended into the 2023/2024 fiscal year, encouraging businesses to continue investing in their operations.
Research and Development (R&D) Tax Credits
The R&D tax credit scheme has been expanded with the aim of fostering innovation and growth in the UK economy. As a result, the scope of qualifying expenditures has been broadened, and the rate of relief for SMEs has been increased.
This change will benefit businesses engaged in R&D activities, encouraging further investment in innovation.
Loss Carry Back
The temporary extension of the loss carryback rules, allowing businesses to carry back trading losses for up to three years, has been continued in the 2023/2024 fiscal year.
This relief measure provides businesses with greater flexibility to manage their tax liabilities and recover from any financial challenges they may have faced during the pandemic.
The 2023/2024 UK corporation tax update impact businesses of all sizes. Companies can optimize their tax positions and foster growth by understanding and adapting to these changes. Staying informed on future changes is crucial for ongoing success.
For further guidance and help regarding the corporation tax update and your other business needs, consult us at Sterlinx Global.
Frequently Asked Questions
How is corporation tax computed in the UK?
Corporation tax calculation in the UK is based on a company’s taxable profits. Taxable profits include income from trading, investments, and chargeable gains from selling assets.
To calculate corporation tax, deduct allowable expenses, capital allowances, and reliefs from the total income. Then, apply the relevant corporation tax rate (19%, 25%, or a tapered rate) to the resulting taxable profits.
What tax do you pay on dividends in the UK?
In the UK, dividends are taxed at different rates depending on the individual’s income tax band. Basic rate taxpayers pay 7.5% on dividends, higher rate taxpayers pay 32.5%, and additional rate taxpayers pay 38.1%.
Each individual also has a tax-free dividend allowance (£2,000 in 2022/2023 and (£1,000 in 2023/2024).
Are there any sector-specific corporation tax exemptions or reductions?
There are no sector-specific corporation tax exemptions or reductions in the UK. However, companies involved in research and development (R&D) can benefit from the R&D tax credit scheme, which provides tax relief to encourage innovation.
This scheme may particularly benefit technology, science, and innovation businesses.