In the UK, corporation tax is a tax on the taxable profits of limited companies and other corporate entities. Here’s an overview of corporation tax and the tax bands in the UK:
- Corporation Tax Rate: The corporation tax rate is applied to the taxable profits of companies. The rate can vary depending on the level of profits and any applicable reliefs or exemptions.
- In April 2023, HMRC increased the main rate to 25% for companies with profits exceeding £250,000. Smaller companies with profits up to £50,000 would continue to be taxed at the current rate of 19%, with tapering relief available for profits between £50,000 and £250,000
- Marginal Relief: Companies with profits falling between the thresholds for the main rate and the small profits rate are eligible for marginal relief, which effectively reduces the amount of corporation tax payable. The impact of marginal relief is to create an effective tax rate of 26.5% for profits between £50,000 and £250,000.
- Tax Planning: It is important for companies to consider when to claim reliefs to ensure the optimum tax relief. For example B/F losses can be carried forward and relieved in years where profits fall into the marginal tax band. Similarly Capital Allowances can be claimed in the year maximising tax relief.
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