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Time to prepare for Corporation Tax rise is now, says TWP

Surrey accountancy firm TWP is calling on businesses that pay Corporation Tax to prepare for a rise in this tax on profits next year following the latest shift in the Government’s fiscal policy.

Although original plans to increase the top rate of Corporation Tax to 25 per cent were initially shelved in September’s mini-Budget, they are now proceeding as planned next April, following the Government’s newest plans for fiscal responsibility.

TWP worries that these two sudden and contradictory shifts back and forth on the Corporation Tax rules may have put some businesses in a challenging position, where they now have less time to prepare as a result.

For companies with profits of £250,000 or more, the upper profits limit, the rate of Corporation Tax will rise from 19 per cent to 25 per cent.  

For companies with profits of £50,000 or less, the ‘lower profits limit’, Corporation Tax will continue to be charged at 19 per cent.

Companies with profits between £50,000 and £250,000 will receive marginal relief so that the rate of Corporation Tax will rise incrementally until it reaches 25 per cent.

In practice, this means that where companies have profits between £50,000 and £250,000 they will pay Corporation Tax at an effective rate of 26.5 per cent on each pound of profit in excess of the £50,000 lower rate band.

The lower and upper limits will be proportionately reduced for accounting periods of less than 12 months and where there are associated companies.

Stephen Nicholls, Business and Corporate Tax Manager at TWP, said: “Some businesses will have already planned for the tax rise and held firm with their strategy in anticipation of the Government rolling back its policies from the mini-Budget.

“However, there are likely to be many more businesses out there that have changed their plans or who didn’t even plan for the rise in the first instance.

“They may wish to consider how they can spread or alter their investments to utilise the current lower rate of Corporation Tax.”

Stephen said that corporate tax planning could be complex, relying on a number of different reliefs, losses and opportunities to calculate a final bill, which is why professional advice is highly advised.

To find out how TWP can help you with the upcoming change to Corporation Tax, please contact us.