In the UK, a limited company must pay Corporation Tax on the profits it generates, which currently sits at 19%.

Businesses pay Corporation Tax on trading profits, investments and chargeable gains (this is the selling of assets for more than they cost). Assets of a company are the property, land, equipment, machinery, and company shares.

What is the key change from 1 April?

The Chancellor Jeremy Hunt unveiled changes to Corporation Tax in the Autumn Statement in November 2022.

As from the 1 April 2023, the Corporation Tax rate will increase from 19% to 25% for companies with taxable profits of £250,000 or more. Companies with taxable profits at or below £50,000 will still be taxed at 19%, known as the small profit rate.

For companies with profits between these two amounts a system of marginal relief applies.

However, where the same group of people control more than one company these limits may be reduced. For example, if an individual owns two companies and there is a commercial connection between them each company will pay tax at 25% of its taxable profits exceed £125,000

How does the Corporation Tax Marginal Relief system work?

Companies can claim Marginal Relief if their taxable profits are between £50,000 and £250,000.

Marginal Relief provides a gradual increase in the Corporation Tax rate between the small profits rate and the main rate.

HMRC has launched an online service to help companies calculate their rate of Marginal Relief.

Before using the service, you need to know:

• the company’s accounting period start and end dates
• the company’s total taxable profit
• the amount of any distributions (usually dividends) it receives from non-group, un-associated companies
• any associated (broadly speaking companies under common control) company details

When do companies start incurring Corporation Tax and how do they register?

A business should register with HMRC when they set up as a Limited Company and within three months of starting to trade.

When should a company pay Corporation Tax?

The deadline differs from other taxes and depends on the company’s accounting period.

Generally, companies must:

• Unless it is a large company, pay Corporation Tax nine months and a day after the end of the accounting period.
• This will be before it is required to file its company tax return (which will be 12 months after the end of the accounting period)