Companies Taxation

The normal rate of corporation tax is 19% for the financial year beginning 1 April 2022 and will increase to 25% for the financial year beginning 1 April 2023. 

In addition, from 1 April 2023, a 19% small profits rate of corporation tax will be introduced for companies whose profits do not exceed GBP 50,000.

Where the taxable profits can be attributed to the exploitation of patents, a lower effective rate of tax applies. The rate is 10%. Profits can include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.

CORPORATION TAX RATES

The rate of Corporation Tax you pay depends on how much profit your company makes.

Rates for Corporation Tax years starting 1 April

There are different rates for ring fence companies.

From 1 April 2023, there is no longer a single Corporation Tax rate for non-ring fence profits.

At the Spring Budget 2021, the government announced that the Corporation Tax main rate for non-ring fence profits would increase to 25% for profits above £250,000.

A small profits rate of 19% was also announced for companies with profits of £50,000 or less.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.

For profits from 1 April 2023, use the Marginal Relief calculator to work out how much Marginal Relief you can claim on your Corporation Tax.

RING FENCE COMPANIES

There are different Corporation Tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf. These are known as ‘ring fence’ companies.

For periods up to 31 March 2023, ring fence companies can claim Marginal Relief on profits between £300,000 and £1.5 million. From 1 April 2023, Marginal Relief is available for companies with profits between £50,000 and £250,000.

CORPORATION TAX ON CHARGEABLE GAINS

If you sell or dispose of a business asset, you’ll need to pay Corporation Tax on any profits (or ‘chargeable gains’).

When working out your chargeable gain, you can use Indexation Allowance rates to reflect the increase in value of the asset between the time it was acquired and 31 December 2017.

From 1 January 2018, Indexation Allowance is frozen.

If an asset is acquired before 1 January 2018, but disposed of on or after that date, the Indexation Allowance will be calculated using either the:

• Retail Prices Index
• factor for December 2017

This is regardless of the date when the asset is disposed of.

LIFE INSURANCE COMPANY REGIME

Life insurance businesses are also taxed under a special regime, which effectively includes different corporation tax rates as well as special rules for quantifying profits.

TONNAGE TAX REGIME

Companies that are liable to corporation tax and operate qualifying ships that are strategically and commercially managed in the United Kingdom can choose to apply Tonnage Tax in the place of corporation tax. Tonnage Tax is an alternative method of calculating corporation tax profits by reference to the net tonnage of operated ships. The Tonnage Tax profit replaces the tax-adjusted profit/loss on a shipping business and certain related activities, as well as the chargeable gains/losses made on Tonnage Tax assets. Any other profits are taxable under the normal corporation tax regime.

Various amendments to the tonnage tax regime were enacted in Finance Act 2022 and took effect from 1 April 2022. 

BANKING SECTOR

A supplementary tax is applicable to companies in the banking sector at 8% on profits in excess of GBP 25 million. 

Loss utilisation is restricted; pre-1 April 2015 carried forward trading losses can be set against only 25% of profits in a period, post-1 April 2015 carried forward trading losses are subject to the general loss restriction.

Finance Act 2022 enacted measures to reduce the rate of the supplementary corporation tax charge to 3% on profits above GBP 100 million from 1 April 2023.

REAL ESTATE INVESTMENT TRUST (REIT) REGIME

A UK REIT is, broadly, a UK resident company or a group of companies of which the principal company is UK tax resident carrying on a property investment business, with property let to third-party tenants. Subject to the satisfaction of several conditions, REITs are taxed under a special regime.  

A UK REIT is exempt from UK tax on both rental income and gains relating to its qualifying property rental business, and, since 6 April 2019, gains on the sale of shares in qualifying UK property-rich companies. 

Profits from activities of the REIT other than the property rental business (the ‘residual business’) are subject to corporation tax in the normal way.