Many businesses face a fundamental change in the 2023/24 tax year, as new rates of Corporation Tax are introduced, which will see the headline rate rise to 25 per cent for the most profitable businesses.
Understanding and preparing your business for this change is essential. To do this, you need a much clearer picture of your finances, which is why it is worth carrying out management accounting and future forecasting.
Understanding your profitability and cash flow could give you a clearer picture of the tax you will pay, as your Corporation Tax rate will be tapered depending on your amount of profit each year.
However, conducting this due diligence and forecasting is a time-consuming process, which may require finance teams within many firms to dedicate hours of research – taking their focus away from more pressing matters, such as rising costs.
How do the new Corporation Tax rules work from 2023?
Companies recording profits of £50,000 or less (the lower-profits limit), will continue to pay Corporation Tax at 19 per cent – the same as the current rate of tax for all incorporated businesses.
Businesses with profits between £50,000 and £250,000 (the upper-profits limit) will technically pay the main higher rate of 25 per cent.
However, they will receive marginal relief related to their level of profitability – cutting their tax bill.
As a result, the rate at which these businesses pay tax increases as profits rise until a company reaches profits of £250,000 or more and no longer benefits from this relief.
Many other factors will affect a company’s final tax bill, including special rules where it is part of a larger group of businesses.
The calculations involved in reaching a final tax rate and bill, once the marginal relief is applied, will be quite complex from the beginning of the new tax year, and small changes to a business’s profit level in any given financial year could have a big impact on their Corporation Tax Rate.
What is the solution?
Rather than overburden already overstretched Financial Directors and finance teams, it makes sense to outsource these essential tasks to a team with the resources and expertise required to conduct accurate forecasts and management accounting.
By having this work conducted externally, not only do you access an additional level of expertise, but your team can remain focused on more urgent matters, while you enjoy the peace of mind knowing that the preparations for the Corporation Tax change are underway.
If you would like an initial free consultation to find out how our Outsourced Accounting Services team can help your business, please get in touch by emailing firstname.lastname@example.org or calling 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 21st June 2022.