After a difficult year for business owners, you may well have been anticipating this year’s spring Budget more impatiently than usual. The chancellor, Rishi Sunak, used his statement to outline a three-part plan for the economy. It involved:

  • Continuing to support those struggling financially due to the pandemic
  • Making up the gap in the government’s finances
  • Investing in the future.

Part two of this plan involved several tax and allowance freezes, plus a confirmed rise in Corporation Tax, set to come into force in two years.

What does the rise mean for you, your business, and your customers?

A Corporation Tax rise will come into force from 2023 

Although a rise in the tax rate paid on company profits was expected, the size of the increase came as a shock to many. In 2023, the rate will rise from 19% to 25%.

Paul Johnson, director of the Institute for Studies, told the BBC recently that the rise “was at the top end of expectations” and called it “risky”.

Rishi Sunak, on the other hand, confirmed it was “fair and necessary” that companies helped to make up the gap in the public purse – in line with his three-part plan economic recovery plan.

The change will not apply to all companies and has been partially offset by the introduction of a so-called super-deduction.

The changes to Corporation Tax in full

For companies with a profit under £50,000 the current rate of 19% will remain in force and is not due to change in 2023.

The rise will apply to those companies earning over £50,000 but will also be tapered, meaning that only those with profits greater than £250,000 will pay the full 25%.

The chancellor stated in his announcement that this will affect approximately one in ten companies.

The increase will not come into force for another two years and the chancellor also made clear that even at 25%, the UK’s Corporation Tax rate would remain the lowest among the countries comprising the G7.

A “super-deduction” has been introduced to incentivise investment

Sunak also announced the arrival of a “super-deduction”.

Intended as a means of encouraging business investment, companies paying out on “qualifying new plant and machinery assets” between 1 April 2021 and the end of March 2023, will be able to reduce their Corporation Tax bill by 130% of the cost.

This effectively means that for every pound you invest in your company, taxes are cut by up to 25p. The chancellor called the super-deduction “the biggest business tax cut in modern British history”.

The deduction won’t apply to intangible investments, but according to the Treasury, items qualifying as tangible plant and machinery investments could include:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

Boolers can help you get to the grips with the changes and mitigate their impact on your business

The first points to note are that Corporation Tax is a tax on profit, not turnover, and that the rate changes don’t come into force for another two years.

When they do arrive, the rate your business pays will only increase if it has profits above £50,000. You will only need to pay the top rate of 25% if your profits exceed £250,000.

If you think you will see a change to the rate of tax you pay on company profits in 2023, now is the time to start considering the effects of that.

We can review your long-term financial plans, calculate any potential impact, and advise you if anything needs to change.

One way that you can lessen the potential consequences now is to make use of the super-deduction by investing in your company over the next two years. Again, we can help you decide if you can afford to invest, and whether the benefits of the relief will outweigh your expenditure.

Get in touch

The financial plan we have helped to put in place for you is robust and based on your individual circumstances and long-term goals.

We also review it regularly to ensure it is still on track. Remember that dips across financial markets or regulatory changes don’t necessarily mean you need to alter your plan. If your long-term goals are the same, your plan is too.

The peace of mind that comes from knowing that your plans are on track is invaluable so if you are worried about the potential effects of the chancellor’s Corporation Tax changes on your business, please contact us today.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.