From 1 April 2023, numerous changes will be made within the corporate and business tax landscape. These changes are not limited to the more obscure aspects of legislation; instead, they apply to perhaps the most significant aspects: corporation tax and capital allowances. As such, it is essential to ensure that tax relief is maximised within the current tax year to safeguard against a potentially uncertain economic environment going forward. This article aims to provide an overview of the more important changes being made to the legislation and is therefore not an exhaustive list of all of the changes being implemented from 1 April 2023.
Rishi Sunak has announced the first corporation tax rise in 47 years, with the rate set to increase to 25% for company profits over the ‘upper limit’ of £250,000 from April 2023, while those with company profits below £50,000, the ‘lower limit’, will continue to pay the current corporation tax rate of 19%. Furthermore, the amount that a company pays will be dependent on whether it has any ‘associated’ companies. Where a company has associated companies, the limits are divided by the number of associated companies plus one.
In the past, this calculation has been used to determine whether a company pays corporation tax by instalments; however, this more stringent step seeks to raise additional tax income for the Government to recuperate some of the costs associated with the pandemic. As such, smaller companies may see their tax payments increase due to common ownership.
What is meant by ‘associated’?
A new definition applies from 1 April 2023 to determine whether a company is an associated company for the purposes of the new corporation tax rules. For these purposes, a company is an associated company of another at any time when:
- one of the two has control of the other; or
- both are under the control of the same person.
The following table shows the upper and lower limits for companies with zero to five associated companies:
|Number of associated companies||Lower limit||Upper limit|
Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by marginal relief. The marginal relief acts to adjust the rate of tax paid gradually increasing liability from 19% to 25%.
Unincorporated businesses and companies planning capital expenditure projects need to be aware of some time-limited reliefs. Timing capital expenditure to benefit from these reliefs can be financially beneficial.
Annual investment allowance
The annual investment allowance (AIA) is available to both unincorporated business and to companies. It provides immediate 100% relief against profits for qualifying capital expenditure on plant and machinery in the accounting period in which the expenditure is incurred up to the available AIA limit. The limit remains at its temporary limit of £1 million until 31 March 2023, reverting to its permanent level of £200,000 from 1 April 2023.
Care needs to be taken with companies whose accounting period straddles the 1 April 2023, as the AIA will need to be apportioned between the new and old limits.
Super-deductions for companies
Companies can also benefit from a super-deduction of 130% of the expenditure when calculating profits. This is available in respect of qualifying expenditure on plant and machinery which would otherwise be eligible for main rate writing down allowance, subject to certain exceptions, the main one being expenditure on cars. For special rate items of expenditure, the 50% first-year allowance is available (excl. cars).
To qualify, the expenditure must be incurred in the period from 1 April 2021 to 31 March 2023.
These super-deductions is only available to companies; unincorporated businesses do not qualify. Where available, the deduction rate trumps that under the AIA. However, the expenditure must be incurred by 31 March 2023 to qualify.
Companies should carefully plan their capital spend to ensure that they get the maximum beneﬁt of the enhanced allowances available. Adequate records will be required to cover the contentious issues of cut-off between the different regimes.
Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.