Veterinary update: How will your veterinary company be impacted by the increasing corporation tax rate?

Published: Thursday 8 April 2021

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. 

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  
  £200,000     £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 company 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 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.

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Phil Swan
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