Corporate Tax in the UK: Everything You Need to Know 2023

Understanding corporate tax in the UK can seem like walking through a maze – it’s complex and always changing. For businesses of all sizes, keeping up with these changes is crucial. 

In 2023, we’ve seen some big changes in the UK’s corporate tax rules. This guide will help you understand these changes and what they mean for your business.

Business owner discovering how corporate tax works in the UK.

Understanding corporate tax in the UK

Corporate tax, also known as corporation tax, is a tax that businesses pay on their profits. It’s an important part of running a business and affects how much money a business makes after paying taxes. Since April 2023, businesses have needed to pay 25% in corporate tax which is higher than before. This tax is really important because it helps fund government services and affects how businesses plan their finances.

Historical perspective

The rate of corporate tax in the UK has changed a lot over time. In 2010, it was 28%, but then it started decreasing each year until it was just 19% in 2017. This was part of the government’s plan to help businesses grow. But in 2023, things changed and the rate went up to 25%. This change means businesses need to think differently about how they handle their money.

Two business owners discussing who is liable for corporate tax in the UK.

Who is liable for corporate tax?

In the UK, not just local companies pay corporate tax. It also includes UK branches of foreign companies. But not every type of business pays this tax. People who work for themselves (sole traders) and business partnerships handle taxes differently, usually through income tax.

Recent changes in corporate tax rates

The year 2023 brought some big changes in corporate tax in the UK. Now, if a business makes more than £250,000, it has to pay a 25% tax on its profits. But smaller businesses that make £50,000 or less pay a smaller tax rate of 19%. There’s also something called Marginal Relief, which helps businesses that are in between these two profit amounts pay a fair amount of tax.

Business owners calculating corporate tax with financial statements and a calculator.

Calculating corporate tax

Figuring out how much corporate tax you need to pay can be tricky. You start by applying the 25% rate to your profits and then adjust if your profits are in the middle range. Marginal Relief is like a cushion that prevents your tax bill from jumping up too much all at once.

Compliance and responsibilities

Following the rules for corporate tax means to file your taxes on time and paying what you owe. It’s usually the bosses of the company (the directors) who have to make sure this is done right. You typically have nine months and one day after your financial year ends to pay your taxes, with several ways to pay, like online or by direct debit.

Penalties for non-compliance

If you don’t follow the rules for corporate tax, you can get hit with some big fines. These penalties range from set amounts for being a bit late to larger fines based on how much tax you haven’t paid if you’re really late. Plus, if you make a mistake on your tax return and try to hide it, the fines can be even bigger.

Special tax regimes

The corporate tax system has special rules for certain industries. For example, oil and gas companies in the UK have to pay a different type of corporate tax called Ring Fence Corporation Tax, which is usually higher. Banks also have their own set of rules and extra charges.

Impact on dividends and profit distribution

Corporate tax directly affects how much profit a company can share with its owners or shareholders as dividends. When the tax rate goes up, there’s less profit left to distribute. This makes it really important for businesses to think about how corporate tax will affect their profit sharing.

Business owner learning how to calculate corporate tax for their multiple companies.

Managing multiple companies

When you’re running several companies that are linked, figuring out corporate tax can get even more complicated. You have to be careful about how profits are shared between the companies to make sure you’re not paying more tax than necessary. It’s all about planning and balancing things out.

Reducing corporate tax liability

One of the goals for many businesses is to pay as little in taxes as they legally can. You can do this by claiming tax breaks for things like property and equipment, getting credits for research and development, and using things like Patent Box tax relief. These strategies can really cut down on how much tax you have to pay.

Business owners not stressing about corporate tax due to their optimised corporate tax strategy.

Summary

To sum up, corporate tax in the UK in 2023 has its challenges but also opportunities. With the tax rate now at 25%, businesses need to plan carefully and understand all the rules. Keeping up with your tax responsibilities is key to avoiding penalties. 

Remember, it’s crucial to file your taxes on time and correctly to avoid penalties. Using tax reliefs and credits wisely can help keep your tax bill lower. And if you’re ever unsure, it’s a good idea to ask a business accountant for advice.

Are you ready to optimise your corporate tax strategy? Contact Wilkinson Accounting Solutions for advice that’ll guarantee your business’s success.

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