Corporation Tax

The planned increases in Corporation Tax (CT) rates from April 2023 are now proceeding as originally announced.

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.

The amount of Corporation Tax to pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200.

For some businesses, it may be prudent to reconsider associated company relationships before April 2023 to avoid partial loss of the lower 19% rate or marginal tapering relief.

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.

The amount of Corporation Tax to pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200.

For some businesses, it may be prudent to reconsider associated company relationships before April 2023 to avoid partial loss of the lower 19% rate or marginal taper relief.

Corporation Tax relief may be available where a company or organisation makes a trading loss. The loss may be used to claim relief from Corporation Tax by offsetting the loss against other gains or profits of the business in the same accounting period.

It is also possible to carry a trading loss back in order to claim relief from Corporation Tax by offsetting the loss against profits in previous years. Carrying back a trading loss allows companies to seek relief for the losses by carrying them back to an earlier profit-making period resulting in a reclaim of Corporation Tax.

Usually, such a claim can only be made once a Corporation Tax return has been prepared and submitted to HMRC. Losses may only be carried back against profits of a preceding accounting period if the company was carrying on the trade (in which the loss was incurred) at some time in that accounting period.

Any claim for trading losses forms part of the Company Tax Return. The trading profit or loss for Corporation Tax purposes is worked out by making the usual tax adjustments to the figure of profit or loss shown in the company’s or organisation’s financial accounts.

It is also possible for certain losses that a company has not used in the same accounting period or carried back to be offset against profits in future accounting periods.

The Residential Property Developer Tax (RPDT) is a new tax on large residential property developers that came into effect on 1 April 2022. The new tax was first announced in February 2021 as part of a package of measures to contribute towards the Government’s cost of dealing with defective cladding in the UK’s high-rise housing stock discovered following the Grenfell Tower fire tragedy in June 2017.

This is a profits-based tax levied on the largest residential property developers. The tax is payable by developers with annual profits over £25 million. For companies within the scope of the tax, RPDT is charged at 4% on residential property development profits that exceed their annual allowance of £25 million.

The RPDT applies to profits arising from residential property development in accounting periods ending on or after 1 April 2022, with profits from periods straddling that date being apportioned. The tax applies to all qualifying businesses not just those who were directly involved with defective cladding matters.

HMRC’s internal manuals list the following four key concepts that need to be considered when determining whether a company is an RP developer with the effect that the activities of the company (or other members of its group) fall within the scope of RPDT:

• Is the company liable to UK Corporation Tax?
• Is it conducting activities of, or in connection with, the development of residential property in the UK as part of, or in support of, a trade continued by the company or a member of its group?
• Does the company, or a member of its group, have an interest in the land that is being developed, either directly or through holding a substantial interest in a relevant joint venture company, which will later be disposed of in the course of that trade, other than an excluded interest?
• Does the development activity relate to residential property, in whole or in part, other than properties which are specifically excluded?

There is still time to claim the super-deduction allowance that offers 130% first-year tax relief. The deduction is available to companies until March 2023. The super-deduction is designed to help incorporated businesses finance expansion in the wake of the coronavirus pandemic and to help drive growth.

The super-deduction tax break was introduced on 1 April 2021 and allows businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment investments that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 businesses invest they can reduce their tax bill by up to 25p. 

In addition, an enhanced first year allowance of 50% on qualifying special rate assets also applies expenditure within the same period. This includes most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances. 

Only companies can claim the the super-deduction. This means that self-employed traders are unable to benefit. However, they could benefit from the temporary increase in the Annual Investment Allowance (AIA) cap to £1 million. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit.

Non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency.

If the non-resident company is deemed liable to pay Corporation Tax, then its chargeable profits are:

• any trading income arising directly or indirectly through or from the permanent establishment/branch or agency,
• any income from property or rights used by, or held by or for, the permanent establishment/branch or agency except dividends or other distributions received from companies resident in the UK, and
• chargeable gains falling within TCGA92/S10B.

There are however some differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

• is not liable to account for ACT on distributions made before to 6 April 1999,
• cannot have 'franked investment income',
• cannot have surplus franked investment income for the purposes of ICTA88/S242,
• cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement.

If you have recently setup a new limited company or are thinking of doing so then one of the areas that you need to be aware of is the accounts and tax filing regime for companies.

After the end of its financial year, a private limited company must prepare full annual accounts and a company tax return. In most cases a company’s tax return must be submitted within 12 months from the end of the accounting period it covers. Online Corporation Tax filing is compulsory for company tax returns. Company tax returns must be submitted using either HMRC’s own software or third-party commercial software approved by HMRC and in the required format.

The accounting period for Corporation Tax is normally the same 12 months as the company financial year covered by the annual accounts. There is a separate fixed date for the payment of Corporation Tax which is 9 months and 1 day after the end of the relevant accounting period. This means that a company is usually required to pay any Corporation Tax due in advance of the filing deadline for a company tax return.

A company has a right to amend its company return within 12 months from the statutory filing date. Examples of when a return may be amended include claims for group relief and elections rebasing for capital gains.

There are penalties for late submission of company tax returns. There is a standard penalty of £100 for a late submission of the return within 3 months of the due date and a £200 penalty if the return is over 3 months late. Companies that submit late returns for 3 or more accounting periods in a row are subject to increased penalties. There are further tax based penalties for companies that do not file a return within 18 months of the end of the relevant accounting period and which have not paid the tax due. These penalties can be either 10% or 20% of the unpaid tax depending on the lateness of the filing.

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000, a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.

The amount of tax you pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction is 3/200.

Companies often have to contend with having two different company accounting periods. This is because there are different rules for Companies House filings and for HMRC to whom any Corporation Tax due is paid.

The accounting periods can be the same but can also differ and a change may be needed to ‘sync’ the accounting periods. As a general rule, the Companies House rules are more flexible and under certain circumstances it is possible to make a change to the year end. The Companies House accounting period can sometimes run for more or less than 12 months.

A tax accounting period for Corporation Tax purpose cannot be longer than 12 months. This can create the unusual scenario whereby a company will be required to file two returns with HMRC if an accounting year is longer than twelve months.

If your accounts cover less than 12 months, then your accounting period will normally end on the same day and will also be shorter than 12 months. This can happen if the company stops trading or shortens its company’s year-end date (also known as its accounting reference date).

HMRC can be called by phone on 0300 200 3410 for help with general Corporation Tax enquiries. You will need your 10-digit Unique Tax Reference (UTR) when calling HMRC and this reference number cannot be provided over the phone.

The UTR is the primary identifier for a company and should be used whenever HMRC is contacted. The number can be found on all letters from HMRC and also in HMRC’s business tax account portal – if the company has registered for online tax services and attached the UTR to their profile.

HMRC’s Corporation Tax phone lines are open Monday to Friday: 8am to 6pm and closed weekends and bank holidays. The phone lines are typically less busy between 8.30am and 11am.

You can also write to HMRC at the following address for help with general Corporation Tax enquiries.

Corporation Tax Services
HM Revenue and Customs
BX9 1AX
United Kingdom

You should include your UTR in the letter and on the first page of any documents you send. If you are replying to a letter you’ve received about your Corporation Tax, you should use the address on that letter.