The spring budget included early announcement that the corporation tax rate will increase from 19% to 25% from 1 April 2023.
This increase will affect companies with profits over £50,000, with a tapered rate being applied to companies with profits up to £250,000. Where the company is a trading company, only companies with profits over £250,000 will be subject to the 25% full rate.
A new ‘small profits’ rate of corporation tax will be introduced for companies with annual profits below £50,000.
For an agricultural business the additional annual corporation tax on profits between £50,000 and £250,000 will be subject to a marginal rate of 26.5%.
This is illustrated by the following table:
| Profits |
Current corporation tax at 19% |
Corporation tax under new rules |
Additional corporation tax due |
| £50,000 |
£9,500 |
£9,500 |
£0 |
| £100,000 |
£19,000 |
£22,750 |
£3,750 |
| £150,000 |
£28,500 |
£36,000 |
£7,500 |
| £200,000 |
£38,000 |
£49,250 |
£11,250 |
| £250,000 |
£47,500 |
£62,500 |
£15,000 |
| £300,000 |
£57,000 |
£75,000 |
£18,000 |
Corporation tax is usually due 9 months and 1 day following the end of the accounting period.
Where possible, it will be worth carrying out pre year-end tax planning to reduce profits below £50,000 ahead of your year end following 1 April 2023. This could involve investing in plant and machinery which qualifies for capital allowances or making corporate contributions to directors’ pensions.
It may also be beneficial to consider delaying expenditure scheduled in a period prior to 1 April 2023 into the post 2023 period, especially if you expect taxable profits to be between £50,000 and £250,000.
For any farming businesses considering transferring to a limited company the benefit of lower tax rates will be less attractive in the future than it has been previously. However, where the company is expecting to reinvest profits, as opposed to the owners drawing them out, the corporate structure may still benefit many businesses.
If you would like to discuss planning opportunities around incorporation and planning for the increase in corporation tax rates, please contact Pip Cusack on 01242 680000.