Prime Minister Liz Truss announced on Friday that Britain’s corporation tax will be increased to 25% after sacking finance minister Kwasi Kwarteng.
The Minister of Finance, Kwarteng, stated in a “mini-budget” on September 23 that corporate taxes would be frozen at 19%, reversing a rise to 25% announced by his predecessor, along with a number of other unfunded tax cuts that have since roiled the financial markets.
Truss spoke just hours after firing Kwarteng and announced she had decided to maintain the increase, a move that would boost the public finances by 18 billion pounds.
As of April 1, 2023, the following will occur:
- A small profit rate of 19% will apply to companies whose profits are equal to or less than £50,000.
- The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25% reduced by marginal relief. By adjusting the marginal tax rate, the liability is gradually increased from 19% to 25%.
These amounts (the £50,000 and £250,000 limits) are reduced if the company has affiliated companies or an accounting period of fewer than 12 months.
A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:
- One company has control of the other.
- Both companies are under the control of the same person or group of persons.
Thus, two companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.
When do I need to prepare for the corporation tax changes?
A company that has a group structure – or where the common control issue is relevant – should consider the associated company issue as soon as possible. The purpose of this is to prepare in case any future tax increases need to be mitigated.
Advice on how to plan ahead:
Refresh your business plan
In recent years, a number of unexpected challenges have arisen, including COVID-19 and rising living costs. Therefore, the plans you had for your business may now need to be revised.
Check your business plan to ensure that it is still accurate and relevant. Consider what worked well before 2020 and whether it is still effective. Make any necessary improvements or adjustments if necessary. Consider whether your goals remain realistic.
There may be some growth plans that will need to be paused, but there may also be new ways to expand your business, such as by entering new markets, developing a new product or service, and reaching new types of clients.
Evaluate how your industry has been affected in general and whether any new opportunities have emerged. Your product or service may be able to fill a new gap.
Review your budget and cashflow forecast
As soon as you have updated your business plan, you should review your financial situation. Plot a new cash flow forecast based on how much cash your business will require.
The Cash flow forecast indicates how much cash is expected to flow into and out of your business. In order to plan for the future, you need to understand where your business stands at present. Before approving any funding, a finance provider will typically require one.
You may need to include new costs in your forecast as you prepare for recovery. It may involve hiring new employees, purchasing equipment, and increasing marketing expenditures.
An accountant can help with your cash flow projections.
Examine your funding needs
Finance is an essential component of your business’s operation. A pandemic disruption, rising costs, or plans for future growth may necessitate additional funding.
In order to identify if external funding is required, you should formulate your cash flow forecast correctly.
The Government’s Coronavirus grant program has ended, so you should explore other options. A variety of funding options may be available, including grants from non-COVID agencies, bank loans, overdrafts, crowdfunding, and angel investors.
File your tax return early
It makes good business sense to work with your accountant and file your Self Assessment tax return as early as possible, even though the official deadline is still many months away.
By planning for how much tax you will owe, you will be able to budget and manage your cash flow. Don’t forget that if you file your tax return before the 31st January deadline you do not have to make a payment immediately.
While preparing your tax return, your accountant may also be able to recommend additional tax-saving opportunities.