Following the Chancellor’s decision to reinstate the Corporation Tax increase in the Medium-Term Fiscal Plan, the £18 billion tax hike will go ahead as planned from 1 April 2023.
The Corporation Tax rate is currently 19%, and will rise to 25% in April, raising an estimated £12 billion in the first year, rising to £18 billion by 2025/26, with a system of tapered relief for companies with profits of between £50,000 and £250,000. The significant increase and additional tax burden could lead to a significant reduction in investment and even increase the risk of businesses closing, especially given the current economic climate with rising interest rates and inflationary pressures.
The tax burden businesses are facing is higher than we have seen in the last two decades, with owner managed businesses likely to feel the biggest impact. These types of business owners may be unable to consider inward investment to grow as they may need to retain their profits to pay their household bills.
Planning for an increase of this scale means it is more important than ever for SMEs to actively manage their corporate tax liabilities, and take full advantage of available tax reliefs to their liquidity, including:
- Maximising the Annual Investment Allowance (AIA) of £1m
- Claiming R&D tax relief
- Increasing pension contributions
- Maximising benefits for your team and focus on employee wellbeing
- Considering electric vehicles
If you are considering moving forward with an option outlined above, we would recommend speaking to your adviser before taking any action.
Get in touch
For more information, or to discuss your specific circumstances in more detail, contact corporate tax director, Claire Astley, by clicking the button below.