In last week’s Budget 2021, the announced that the main corporation tax rate will increase from 19% to 25% for firms with profits over £250,000. And a new small profits rate of 19% will be introduced for businesses with profits up to £50,000.
However, this introduction of a small profits rate for corporation tax from 2023 is likely to increase complexity.
Afford Bond Director, Paul Edwards said: “Although the small profits rate will protect smaller firms from the increase in corporation tax, it will add further complexity and as a result of marginal relief, businesses with profits which fall between the £50,000 and £250,000 relief band could also be subjected to a higher tax rate of around 26.5%.
And the ATT added: “Introducing marginal relief removes an otherwise unwelcome cliff-edge effect which would otherwise mean that a small increase in profits would make corporation tax rates shoot up. But we know from past experience that marginal relief calculations can be complicated, and make estimating future tax bills tricky.
Paul Edwards added: “The reintroduction of the small profits rate may therefore be welcome by the smallest companies – and those just starting out – but might cause headaches for those whose profits lie in the middle ground, especially when taking into account the effects on business of the pandemic.”
If you need expert tax advice, or help with your corporation tax, please use the Contact Us form here on our website or phone Nantwich Accountants on T: 01270 623731 or Wilmslow Accountants on T: 01625 416380.