Limiting impact of 2023 Corporation tax hike
Discussion
Please can you sense check my idle musings on how to limit the impact of the planned corporation tax hike from 19% to 25% in April.
I’m a joint owner & Director in a small limited company, and both Directors are in a fortunate position that the company can make annual pension contributions of £40,000 each. This also has the added benefit of reducing the corporation tax liability by £15,200 (19% of £80,000).
The company usually makes the pension payments in March, just before the end of the tax year. With the corporation tax rate rising to 25% in April, I was thinking of postponing the pension payment for the 2022-2023 tax year until April, so that it comes out of the 2023-2024 tax year.
My reasoning is that the corporation tax saving would be £20,000 (based on 25% of £80,000), and thus the company would be overall £4,800 better off.
Is my thinking correct, or have I missed something glaringly obvious as to why this would not work?
I’m a joint owner & Director in a small limited company, and both Directors are in a fortunate position that the company can make annual pension contributions of £40,000 each. This also has the added benefit of reducing the corporation tax liability by £15,200 (19% of £80,000).
The company usually makes the pension payments in March, just before the end of the tax year. With the corporation tax rate rising to 25% in April, I was thinking of postponing the pension payment for the 2022-2023 tax year until April, so that it comes out of the 2023-2024 tax year.
My reasoning is that the corporation tax saving would be £20,000 (based on 25% of £80,000), and thus the company would be overall £4,800 better off.
Is my thinking correct, or have I missed something glaringly obvious as to why this would not work?
Not off-hand but basically, if there are two associated companies, the thresholds are halved. If there are three, they are divided by
three etc.
The difficult part is establishing whether associated companies exist as the criteria for working out whether companies are associated or not can be a bit convoluted.
This article is quite good, if it is viewable.
https://www.accountingweb.co.uk/tax/business-tax/t...
three etc.
The difficult part is establishing whether associated companies exist as the criteria for working out whether companies are associated or not can be a bit convoluted.
This article is quite good, if it is viewable.
https://www.accountingweb.co.uk/tax/business-tax/t...
Eric Mc said:
Not off-hand but basically, if there are two associated companies, the thresholds are halved. If there are three, they are divided by
three etc.
The difficult part is establishing whether associated companies exist as the criteria for working out whether companies are associated or not can be a bit convoluted.
This article is quite good, if it is viewable.
https://www.accountingweb.co.uk/tax/business-tax/t...
Oh my, that's really sthree etc.
The difficult part is establishing whether associated companies exist as the criteria for working out whether companies are associated or not can be a bit convoluted.
This article is quite good, if it is viewable.
https://www.accountingweb.co.uk/tax/business-tax/t...
t!Say A Ltd wholly owns B Ltd.
A Ltd makes a profit of £100,000
B Ltd makes a profit of £10,000.
Currently the CT liability is £19,000 + £1,900 = £20,900
If each had the full thresholds the new CT liability would be £22,750 + £1,900 = £24,650
Dividing the thresholds between the two it will be £24,625 + £1,900 = £26,525
OutInTheShed said:
Doesn't it depend when your company year end is?
The change comes into effect on 1 April 2023. So, in the first year that the new rules apply, if a company has a year end that ISN'T 31 March 2023, then it has to apportion its profit between the two Corporation Tax years that the annual profit straddles.If the company is part of a group of associated companies then all the apportionments have to be time apportioned. If the companies have different year ends, then you have a really messy set of calculations.
Rufus Stone said:
Yes you can do that, but are you liable for the full 25%?
Effective corporation tax rates are banded from 2023:
£1 - £50,000 19%
£50,000 - £250,000 26.5%
£250,000 + 25%
Unfortunately, my firm will fall into the 26.5% range, hence looking for ways to avoid some of the hike.Effective corporation tax rates are banded from 2023:
£1 - £50,000 19%
£50,000 - £250,000 26.5%
£250,000 + 25%
Phooey said:
Haven't done the maths so it might be six and two threes but doesn't postponing until next yr (23/24) allow you to make (up to) 80k per director (160k total) in pension payments. So that's potentially 160k to set against company profits / 23/24 corporation tax @ up to 25%?
Yes, I had considered that, and offsetting £160k against corporation tax would be an extra bonus in significantly reducing the tax bill. It's just a shame that this would be a one off occurrence, as future tax years would revert back to £80k per year again.
isleofthorns said:
one idea is for anyone with a current year ends from sept22 to feb23, to consider changing their year end to the march 23 (you can one-off increase by 6 months max), this way you can earn more at the 19% rate.
The corp tax calculation is blended. Our year end is September so our next year end will be during the 25% regime but our actual rate will be circa 22%. Eric is correct about associated companies. Wait until you have to juggle with quarterly advance corp tax payments.
Jockman said:
The corp tax calculation is blended. Our year end is September so our next year end will be during the 25% regime but our actual rate will be circa 22%.
Eric is correct about associated companies. Wait until you have to juggle with quarterly advance corp tax payments.
yes, but if you extend your sept22 year end to mar23, the profits you make between sept22 and mar23 will be taxed at the current 19%...Eric is correct about associated companies. Wait until you have to juggle with quarterly advance corp tax payments.
isleofthorns said:
yes, but if you extend your sept22 year end to mar23, the profits you make between sept22 and mar23 will be taxed at the current 19%...
ps - probably more relevant if you have specific profits you want to make / include before the rate changes. in my case I sold a property with a large gain in dec, so def wanted this included at the 19%isleofthorns said:
Jockman said:
The corp tax calculation is blended. Our year end is September so our next year end will be during the 25% regime but our actual rate will be circa 22%.
Eric is correct about associated companies. Wait until you have to juggle with quarterly advance corp tax payments.
yes, but if you extend your sept22 year end to mar23, the profits you make between sept22 and mar23 will be taxed at the current 19%...Eric is correct about associated companies. Wait until you have to juggle with quarterly advance corp tax payments.
Unless I’m completely misreading this, which is possible!!
Rufus Stone said:
Yes you can do that, but are you liable for the full 25%?
Effective corporation tax rates are banded from 2023:
£1 - £50,000 19%
£50,000 - £250,000 26.5%
£250,000 + 25%
I thought the rate between £50k and £250k was tapered between the 19% and 25% rate? From what I could find online:Effective corporation tax rates are banded from 2023:
£1 - £50,000 19%
£50,000 - £250,000 26.5%
£250,000 + 25%
somewhere online said:
The corporation tax will increase to 25% from 1 April 2023, affecting companies with profits of £250,000 and over. The legislation that provided for this increase also sets out that small companies with profits up to £50,000 will continue to pay corporation tax at 19%, with profits between these two figures being subject to a tapered rate.
Which is correct then, tapered or 26.5%? Hoping it's tapered as it seems fairer but when has that ever had anything to do with anything.
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