New rates from 1 April 2023
From 1 April 2023, the rate of Corporation Tax will increase to 25% if a company’s profits exceed £250,000 a year. The current 19% rate will however continue to apply where profits are no more than £50,000 a year.
Where a company’s profits fall between £50,000 and £250,000 a year, while the first £50,000 of profits are still taxed at 19%, the profits falling within the two bands are taxed at an effective 26.5% rate thus moving the overall tax rate between the 19% and 25% tax rates.
Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them equally irrespective of their underlying profit, making the 25% rate more likely to apply.
Research & Development (R&D) Reliefs
From 1 April 2023 a raft of changes is coming to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so.
The key changes are:
- The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
- For SME companies, R&D tax relief rates will be reduced from 230% to 186%.
- For loss-making SME companies, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For R&D claimants that don’t meet the new 40% test, the payable credit will be reduced from 14.5% to 10% of the eligible loss.
- Qualifying R&D expenditure will be expanded to include data licences and cloud computing services.
- New claimants (those who have not made a claim in the previous 3 years) will be required to inform HMRC of their intention to make a R&D claim within 6 months of the end of the accounting period to which the claim relates.
From 1 August 2023, additional information requirements will need to be fulfilled when making a R&D claim.
