Corporation Tax (often referred to as Corporate tax) is a tax on a company’s profits (or a corporation, hence the name). Companies pay taxes on their taxable income after expenses have been deducted. This year, the UK Government announced they’ll be making changes to the Corporation Tax, but what are they?

This guide will explain:

  • The current Corporation Tax rate and how to calculate what you owe
  • The changes in Corporate Tax
  • What these changes mean for small businesses
  • Other key changes that will affect small businesses
  • How Countingup helps small businesses manage their taxes

What is the current Corporation Tax rate?

The corporate tax rate is currently set at 19% on all profits for the 2020/21 and 2021/22 tax years. To calculate your Corporation Tax liability, you simply multiply your business profits for the tax year by your tax rate.

If we’re using the current tax rate of 19% as an example, you will calculate the amount like this:

Corporate tax liability  =  Net Profits  x  Current Tax Rate (19%)

For example, if your profits after deducting your allowable expenses are £20,000, you multiply that by 0.19, meaning your corporate tax liability is £3,800, which you would need to pay to HMRC.

£20,000  x  0.19  =  £3800

Remember to hold on to your business records for at least six years from the end of the financial period they relate to. Although, there are four exceptions to the rule where you might need to keep your records for an extended period of time. You can learn more about this here.

What are the changes to the Corporation Tax?

Earlier this year, the Chancellor, Rishi Sunak, announced that the Government will increase the  Corporation Tax for 2023. This increase could have a significant impact on self-employed people working through their limited company.

The Chancellor said the change in the Corporation Tax was one step towards paying for the Government’s response to the pandemic. Here are the key things you need to know about the changes:

The rate of Corporation Tax paid on company profits will increase from 19% to 25%, but the Government won’t introduce the new rate until April 2023. When the new rates are introduced, companies will pay Corporation Tax as listed below:

  • Small businesses with profits of £50,000 or less will stay on the current 19% rate.
  • Only companies with profits exceeding £250,000 will pay 25% Corporation Tax.
  • The tax rate for companies with profits between £50,000 and £250,000 will vary depending on their profits. The more they earn, the higher their rate will be.

This means only 10 % of all companies will pay the 25% rate, according to the Chancellor. In addition, this is how the Government will implement the new rates:

  • The Corporation Tax charge and main rate for Financial Year 2022 will come into effect from 1 April 2022 to 31 March 2023.
  • For the Financial Year 2023, the Corporation Tax charge, main rate and small profits rate will have effect from 1 April 2023 to 31 March 2024.

What do the changes mean for small businesses?

Aside from a potential increase in the amount of Corporation Tax businesses may owe, the change also brings administrative work as business owners figure out how much they need to pay. 

The Government has also introduced a new small profits rate that will allow businesses with profits under £50,000 to stay at the current 19% rate. So you might not be affected by the change at all.

If you do end up paying more in Corporation Tax, the delayed implementation means you have time to prepare for how this might affect your business. If you’re unsure of what to do, it might be a good idea to speak to an accountant to get some clarity.

What other changes should you be aware of?

The Chancellor also extended some support schemes that may affect your business. Learn more below.

Freeze in Personal Allowance threshold

The Government increased the income tax thresholds for this year, where they will stay frozen until 2026. The current rates are as follows:

  • The basic rate threshold is £12,570
  • The higher rate threshold is £50,270

You can learn more about what Personal Allowance is and how it works in this guide.

A new Recovery Loan Scheme

The Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have both ended. Instead, the Government created a new Recovery Loan Scheme designed to support businesses trying to recover from the blows of the pandemic.

The Recovery Loan Scheme allows businesses of any size to access loans and other kinds of finance to help them get back on their feet. Businesses can get between £25,000 and £10 million, and the Government guarantees lenders 80% of the finance. 

This recovery scheme is scheduled to run until the end of the year. 

You can access the scheme through the government’s network of approved lenders. Learn more about the scheme here.

Taxes are often confusing if you don’t have an advanced finance degree. The best way to ensure you get the correct answers and advice for your business is to speak to a professional, like an accountant or business advisor. Learn more about when to hire an accountant for taxes.

How Countingup helps small businesses manage their taxes

Keeping track of taxes is stressful, so why make it harder than it has to be? 

The Countingup app allows thousands of small business owners to manage their financial admin and taxes much easier. With your business current account and accounting software in one app, Countingup automates time-consuming bookkeeping admin. 

With automatic expense categorisation, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your finances and run your business more efficiently. Find out more here.