Autumn Statement: 'marginal CT rate relief"

[d000hg]

From my accountant re: the Autumn statement:

From 1st April 2023:

• - Companies that make a taxable profit of £50,000 or less per year will continue to pay Corporation Tax at the ‘small profits rate’ of 19%
• - Companies with taxable profits between £50,001 and £250,000 a year will pay Corporation Tax at a rate of 25% with a ‘marginal rate relief’ deduction
• - Companies with taxable profits of £250,001 or more a year will pay Corporation Tax at a rate of 25%

• I had missed this detail during the statement itself, what is the relief deduction and has the detail already been given? I imagine that's the category many if not most of us here are in.

Sorry if KUATB applies, I didn't see a thread on this.

[eek]

From my accountant re: the Autumn statement:
I had missed this detail during the statement itself, what is the relief deduction and has the detail already been given? I imagine that's the category many if not most of us here are in.[/LIST]Sorry if KUATB applies, I didn't see a thread on this.

It's virtually a lie.

You pay 19% on the first £50,000. It's then 26.5% on everything up to £250,000 at which point the average rate is 25%.

[jamesbrown]

Calculator here, for example:

https://www.pattersonhallaccountants...ion-tax-rises/

Essentially, contractors are hammered because some/most of their company's profits will be taxed at an effective 26.5% rate.

[Fred Bloggs]

Plus divi tax on top? Wow.

[jamesbrown]

Plus divi tax on top? Wow.

Yes, no notional tax credit for dividends, which was ditched in 2016.

[eek]

Yes, no notional tax credit for dividends, which was ditched in 2016.

Not quite it's £1000 next year down from £2000 so that's an extra £75 in tax and then a total of £500 in 2024 onwards so another £37.50

[Maslins]

You pay 19% on the first £50,000. It's then 26.5% on everything up to £250,000 at which point the average rate is 25%.

Yup, this.

You won't see 26.5% appearing anywhere as an official rate of corporation tax, as it isn't one...but the effect is as if that's the rate for profit in that band (£50k-250k). The official calculations will show all profits (including first £50k) taxed at 25%, then give you marginal CT rate relief for profits below £250k. Same end result.

NB a key thing to bear in mind for those of you with 2+ companies (eg a contracting one and a property investment one) is that these thresholds will be divided by the number of companies you control. Logic being it prevents benefit of someone swapping one company making £500k profit for 10 companies making £50k profit each to benefit from the 19% rate.

[jamesbrown]

Not quite it's £1000 next year down from £2000 so that's an extra £75 in tax and then a total of £500 in 2024 onwards so another £37.50

That has nothing to do with the notional tax credit that disappeared in 2016, except that it was introduced at the same time. That is simply the dividend tax free allowance, which was £5k in 2016 and reduced thereafter (declining to £500 in 2024-2025), but it was never a worthwhile mitigation to the loss of the notional tax credit. It was simply a sop to pensioners - the changed dividend tax regime was mainly targeting contractors.

[jamesbrown]

Yup, this.

You won't see 26.5% appearing anywhere as an official rate of corporation tax, as it isn't one...but the effect is as if that's the rate for profit in that band (£50k-250k). The official calculations will show all profits (including first £50k) taxed at 25%, then give you marginal CT rate relief for profits below £250k. Same end result.

NB a key thing to bear in mind for those of you with 2+ companies (eg a contracting one and a property investment one) is that these thresholds will be divided by the number of companies you control. Logic being it prevents benefit of someone swapping one company making £500k profit for 10 companies making £50k profit each to benefit from the 19% rate.

Indeed, the return of the associated company rules too.

There isn't much you can do to avoid this other than pay the most you can into a pension, including carry forward where applicable, but that really only works for 2023-2024.