Last year Rishi Sunak announced an increase in the rate of corporation tax (CT) to be effective from 1 April 2023. The rate will increase from 19% to 25% (or will it? There are some murmurings that a U turn is possible, depends on your view of how to cure inflation and the race for the next PM).
For many of us in practice dealing with SME’s that means the return of an old favourite – marginal relief. We haven’t seen this since year commencing 1 April 2014, but it was firm favourite from 1973 to that date. Like income tax there is a step change in the rate of tax the more taxable profit the company earns and, also like income tax, the system operates to cushion the impact on those companies that make modest taxable profits.
Some detail –
| Profits | Rate of CT |
| Not more than £50,000 | 19% |
| Greater than £250,000 | 25% |
| £50,001 to £250,000 | marginal rate |
Company A has taxable total profits of £180,000 (it has no dividend or distribution income) for the year ended 31 March 2024.
| Corporation tax @ 25% x £180,000 = | £45,000 |
| Marginal relief (£250,000 – £180,000) x 3/200 = | £1,050 |
| Payable | £43,950 |
OR
| Corporation tax @ 19% x £50,000 = | £9,500 |
| Corporation tax @ 26.5% (marginal rate) x £130,000 = | £34,450 |
| Payable | £43,950 |