Rates of Corporation Tax
The corporation tax rate applicable before April 2023, was a flat 19%.
From April 2023 the rates of corporation tax are as follows:
Companies with profits under £50,000 = 19%
Companies with profits over £250,000 = 25%
Companies with profits exceeding £50,000 but not exceeding £250,000 = marginal relief. The marginal relief calculation is complicated (you can find it below if you’re interested), but broadly the marginal rate of tax (for the amount of profits between £50k and £250k) is 26.5%
The Marginal Relief calc…. Strap yourself in. Its going to get techy…
Step 1
Determine whether taxable profits exceed £50k but do not exceed £250k. Let’s say taxable profits are £90k in this example.
Step 2
Calculate the Corporation Tax due on taxable profits at the main (or higher) rate of tax first (so 25% * £90k) = £22,500
Step 3
Reduce the corporation tax calculated in Step 2 by the amount of marginal relief available using the following formula (ready….?)
(F x (U – A)) x (N ÷ A)
Where:
F = the standard marginal relief fraction (set by Parliament for each financial year) – from April 2023 this fraction is 3/200
U = the upper limit – so £250k* note that this is reduced pro rata for the number of associated companies, so any group companies. Eg for a holding company with one subsidiary there are two group companies, so we divide the upper limit by 2
A = the total Augmented profits (we told you it was going to get techy) – which is taxable profits plus any dividends received from non 51% subsidiary companies; and
N = the total taxable profits
So, in this example, lets assume we are dealing with a stand alone entity (no associated companies) that is in receipt of an £8k dividend from a non group company, making augmented profits £98k.
Applying the group relief formula above to our example we get:
(3/200 x (250,000 – 98,000)) x (90,000 ÷ 98000) = 2,094
Step 4
Work out total Corporation Tax payable
Total tax payable = £22,500 (calculated in step 2 ) less marginal relief £2,094 (calculated in step 3) = £20,406.
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