We had a discussion in the office today about the new rates for corporation tax which take effect from April 2023.

For many of our clients who have limited companies we produce monthly management reports which show a monthly provision for Corporation Tax based on their year to date net profit.  This gives them an idea of how much they will need to have available to pay their Corporation Tax bill 9 months after their year end.  With many accountants not producing the company's final accounts until close to the deadline date it ensures business owners have some money put by to cover that bill, which will hopefully be less than we have accounted for.

However now the Government has introduced a sliding scale of Corporation Tax rates for profits between £50,000 and £250,000 it is difficult to know what rate to use to estimate the Corporation Tax month by month.  Businesses which make up to £50,000 net profit will pay 19% Corporation Tax on their profit as before and those making more than £250,000 profit will pay 25%, but what about the profit between these two figures?  

The rate applicable between £50,000 and £250,000 will depend on your level of profit and is known as Marginal Relief.  Marginal Relief provides a gradual increase from the 19% to the 25%.  HMRC has provided a Marginal Relief calculator which will give you an idea of the Corporation Tax due on your profit.  However, of course this can only be used once you know your profit for the year! 

But our clients will want to know on a monthly basis how much they need to put away for their Corporation Tax bill.  So rather than our regular monthly calculation of 19% we will estimate the annual net profit based on the information we have so far and use the calculator to work out the marginal relief percentage.  This should give a fairly accurate picture of their potential bill 9 months after their year end.

Go to HMRC website for more information about Corporation Tax and the Marginal Relief calculator.