UK and International Tax news
Corporation Tax To Increase To 25% From April 2023
Tuesday 7th March 2023
As confirmed by HM Treasury in October 2022 and legislated for in the 2021 Finance Act, corporation tax will increase to 25% from April 2023.
The new higher rate will apply to companies with profits of £250,000 or more. Companies with profits up to £50,000 will continue to pay corporation tax at 19%, and those with profits between these two figures being subject to a tapered rate.
In assessing which tax rate to apply, a company must establish its ‘augmented’ profits. These are the company’s taxable total profits of that period, plus certain non-taxable dividends and other kinds of distributions, received from companies that are not subsidiaries of the company.
For groups, the £50,000 and £250,000 limits will need to be divided by the number of associated companies. For accounting periods shorter than 12 months, these limits are also pro rated.
Where companies are only associated for part of the period, they are treated as being associated for the whole period for the purposes of these rules. An exception applies for dormant companies, being those that do not carry on a trade or business at any time during the accounting period, or that part of the period when it is associated with the other company.
In general, two companies are associated if one has control over the other, or both are under the control of the same person or persons. There are specific rules for certain non-trading companies and association through fixed-rate preference shares, loan creditors and trustees.
The definition of ‘control’ includes rules that can attribute to a person all the rights and powers held by any companies they control or associates of that person. An individual could be treated as controlling a company that a member of their family controls. However, such rules should ensure that such attribution only occurs where there is substantial commercial interdependence between the companies concerned.
The Corporation Tax Act 2010 (Factors Determining Substantial Commercial Interdependence) Regulations 2022 were laid before Parliament in November 2022 and come into force on 1 April 2023. HMRC has issued guidance on these regulations.
The rate of diverted profits tax will also increase from 1 April 2023 to 31%, maintaining the 6% differential with the main rate of corporation tax.
If you would like further detail on the above, please contact Keith Rushen on 0207 486 2378.
Contact Us