Corporation Tax proposed “taper relief” wef FY 2023

[PinkDalek]

Corporate tax

Corporate tax rates and small profits thresholds from 2023. ...

https://www.gov.uk/guidance/corporate-tax

Detail of proposed taper not seen on the page. Other than:

Lower threshold £50,000
Upper threshold £250,000

Thanks PinkDalek. I looked in all the Budget documents that were for download and couldn’t see the detail of the tapering either. I wanted to calculate what effect it will have on my business using the last couple of years returns as comparisons. Do they normally release a “full” document or something, that contains the nitty-gritty?

Me too!

The legislation would contain the mechanics but I’d imagine that wouldn’t be drafted yet but I’m no expert.

Guessing this “taper relief” may conceivably be applied on the same way CT Marginal Relief was calculated some years back. Example as below but with the old bands and rates:

https://www.rossmartin.co.uk/companies/running-the-business/183-company-tax-rates-and-allowances

If I find anything more definitive, I’ll respond here but no time this evening.

[PinkDalek]

Looking again this https://www.gov.uk/government/publicati ... april-2023 includes:

Marginal relief provisions will also be introduced so that, where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the Corporation Tax rate.

[PinkDalek]

Guessing this “taper relief” may conceivably be applied on the same way CT Marginal Relief was calculated some years back. Example as below but with the old bands and rates:

https://www.rossmartin.co.uk/companies/running-the-business/183-company-tax-rates-and-allowances

If I find anything more definitive, I’ll respond here but no time this evening.

Cheers for that. Very useful to have at least some idea of what it might look like, and that seems like a reasonable guesstimate to me in lieu of a definitive document from the government.

Using the helpful template over there, the calculation may be as follows:

£50,000 at 19% = £9,500
£250,000 at 25% = £62,500

Diffs. £200,000 x X% = £53,000

£53,000/£200,000 = 26.5% Marginal Rate (and the marginal rate fraction 1/80).

So chargeable profits exceeding the £50,000 would be charged at 26.5%, up to the £250,000 (subject to the number of companies in the group etc).

Do you agree with these calculations (it's late and I fully acknowledge I get things wrong)?

E&OE etc.

[PinkDalek]

... The fraction had been confusing me ("where does that come from?") ...

Yes it is fun and I got the fraction wrong late last night. Reworking it today it would appear to be 3/200 (and not 1/80).

Attempted proof on chargeable profits of, say, £100,000:

£100,000 at main rate 25% = £25,000

Marginal relief
(£250,000-£100,000) x 3/200 = (£2,250)

Corporation tax due = £22,750

Alternative method:

First £50,000 at 19% = £9,500

Next £50,000 at marginal rate of 26.5% = £13,250

Corporation tax due = £22,750

I hope I'm correct now and that makes some sense.

[PinkDalek]

Yes it is fun and I got the fraction wrong late last night. Reworking it today it would appear to be 3/200 (and not 1/80).

Current version of the Bill - Bill 270 2019-21 (as introduced) - 11 March 2021 Commons
https://bills.parliament.uk/bills/2835

Leads to:

Finance (No.2) Bill
https://publications.parliament.uk/pa/bills/cbill/58-01/0270/200270.pdf

Extract from the 13th page down:

7 Small profits rate chargeable on companies from 1 April 2023 ...

7 (2) For the financial year 2023— (a) the standard small profits rate is 19%, and (b) the standard marginal relief fraction is 3/200ths.