We take a look at three main tax changes that come into effect on 1 April 2023 for companies and outline what action can be taken to ensure companies are being tax efficient given the changes that are coming into effect.
Corporation Tax Rate change
The UK’s main rate of corporation tax will increase to 25% (from the current 19% rate) with effect from 1 April 2023 for companies with annual chargeable profits of more than £250,000.
The 19% rate will be retained for companies making profits of £50,000 or less.
Companies with profits between £50,000 and £250,000 will pay tax at a hybrid rate depending on their profit level.
For companies with year ends which straddle 1 April 2023, the period will be treated as two separate periods for the purposes of the corporation tax calculation.
The profit thresholds are divided by the number of associated companies. The definition of ‘associated company’ is to be widened (broadly speaking) to include companies that are under the control of the same person or persons where those companies are commercially interdependent, not just 51% group companies.
Companies which provide for deferred tax on timing differences in their accounts will need to do so at the rate of corporation tax which is expected to apply in the period in which the timing difference is expected to reverse. For companies with accounting periods ending after 24 May 2021, where the timing difference is expected to reverse after 1 April 2023, deferred tax will need to be provided for at the new rates.
Capital allowances super deduction
Currently, companies which acquire certain plant and machinery can claim an enhanced 130 per cent super-deduction of the cost for tax purposes. This relief will end on 31 March 2023. Any proceeds received from sale of an asset on which super-deduction has been claimed will be brought into tax in the period of sale.
Broadly speaking, qualifying assets include most plant and machinery other than second hand assets, cars and assets bought to lease to someone else. Companies considering purchases of qualifying plant and machinery should consider doing so before 1 April 2023 to take advantage of the super-deduction.
Reduction in Annual Investment Allowance
Currently the AIA affords companies (and unicorporated businesses) with a full tax write off of the cost of eligible plant and machinery acquired in an accounting period up to a maximum of £1m. From 1 April 2023 the AIA reduces to £200,000. For accounting periods which straddle 1 April 2023 the maximum deduction for plant and machinery acquired in the period after 1 April 2023 is the relevant proportion of annual £200,000 limit.
For companies considering a large capital investment in plant and machinery should consider making this before 1 April 2023 to maximise the available AIA.
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
