How will the Corporation Tax changes in 2024 affect companies?

How will the Corporation Tax changes in 2024 affect companies?
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    Disclaimer: This article is based on legislation which was correct at time of publishing on April 10, 2024
    This page was last updated on April 10, 2024

    As we enter the New Year and head towards a new financial year, many businesses are gearing up for the latest round of tax changes. While we have known of the Corporation Tax changes for some time, for many companies, it is only just starting to rear its head with the filing deadline fast approaching for accounting periods ending after 5 April 2024.

    As of 1 April 2023, the main Corporation Tax rate increased from 19% to 25% for companies with profits over £250,000. Companies with profits under £50,000 receive the ‘small profits rate’, which is 19%, and for anyone in between, a marginal rate is applied to gradually increase Corporation Tax.

    At Butt Miller, we are seasoned tax and accounting experts here to help you see the bigger financial picture.

    In this blog, our tax specialists will guide you through the current Corporation Tax changes and how they could impact your business in the next tax year. Our chartered accountants play a significant role in helping small and growing businesses navigate these tax changes effectively, ensuring compliance and steady growth.

    Keep reading to learn more, or get in touch today for expert advice from a chartered accountant.

    What are the Corporation Tax rates for 2024 in the UK?

    On 1 April 2023, the main Corporation Tax rate skyrocketed from 19% to 25% for businesses with taxable profits over £250,000. Businesses whose profits are under £50,000 can continue to pay the 19% rate, while those who earn between the two figures will pay 19% on the first £50,000 and a marginal rate of 26.5% on the remaining profits.

    RateProfit bands £Effective %
    2023-24 and 2024-25
    Small profits rate0- 50,00019%
    Marginal rate50,001- 250,00026.5%
    Main rate>250,00025%

    What will the increase in Corporation Tax mean for businesses?

    The impact of the Corporation Tax changes will largely depend on the size and profitability of your business. Ultimately, the higher your profits, the higher your tax rates and liabilities.

    For SMEs and growing enterprises, the increase in Corporation Tax can have a huge impact, affecting cash flow and growth prospects. It can also affect time management, as navigating the Marginal Relief system can be challenging.

    Small profits tax rate

    Small businesses with a taxable income under £50,000 can benefit from the small profits rate of Corporation Tax, which currently stays at 19%.

    While this is helpful for businesses earning under the threshold, the small profits rate can bring dread for businesses that are on the cusp of making over that amount.

    It may even benefit some businesses to implement innovative tax strategies, such as taking advantage of tax relief and exemptions or restructuring their business to stay below the lower end of the tax rates.

    100% capital allowances

    Businesses can also make use of the Government’s enhanced capital allowances tax incentive on certain qualifying expenditure, including plant and machinery, low-emission vehicles and EV equipment.

    This incentive was created as part of an effort to encourage business investment and boost the economy. It allows businesses to deduct the total cost of certain assets in the year they are purchased, helping them make faster returns and greater tax savings.

    Dividend allowance reduction

    Aside from the Corporation Tax changes, the tax-free threshold for dividend income has also been lowered with intentions to reduce it further this year.

    From 6 April 2023, the tax-free dividend allowance was reduced from £2,000 to £1,000 and is to be reduced even further on 6 April 2024 to £500.

    This reduction directly impacts individuals who receive dividends, especially high earners and retired individuals who heavily rely on dividends as an income source. They will have higher tax liabilities, ultimately leading to less income.

    Is it worth restructuring your company with the new Corporation Tax rate?

    The structure of your business has a significant impact on how much profit you keep. With all of the Corporation Tax changes, it may be worth reviewing the legal structure of your business with a professional accountant like Butt Miller.

    Our accountants can help you determine whether your company is operating in the most efficient way. We’ll look into other opportunities, such as partnerships and internal reshuffling, to ensure the most tax-efficient approach.

    Plus, if you are currently operating as a sole trader, then it may be beneficial to use this time to decide whether to continue running your sole trader business this way or to incorporate.

    Since income tax thresholds are changing, this will push many sole trades into the higher rate tax band.

    What can businesses do to reduce the impact of Corporation Tax?

    Planning ahead with experienced accountants like Butt Miller can significantly reduce your company Corporation Tax bill.

    Here are some tax planning tips your accountant can help with:

    • Making company pension contributions
    • Considering your business’s long-term goals
    • Changing the company structure or ownership structure
    • Maximising the ‘small profits rate’
    • Utilising capital allowances
    • Finding the most suitable tax relief
    • Keeping your business accountants up-to-date

    Corporate tax planning with Butt Miller Chartered Accountants

    Are you looking to get on top of your taxes? At Butt Miller, we can help you optimise your taxes and make informed financial decisions, keeping you compliant and profitable.

    Our Corporation Tax services help businesses navigate the various rules, regulations and changes with ease. By developing a strategic plan, we’ll ensure you not only comply with the new Corporation Tax rates but also leverage opportunities for tax efficiency.

    Contact us today to learn how we can help your business navigate these tax changes.

    Conclusion

    Staying on top of the ever-changing UK tax laws is essential for getting ahead, saving money and staying compliant. The ultimate question of how these Corporation Tax changes will affect your company goes beyond simple adjustments in rates. It involves strategising and searching for cost-saving opportunities.

    At Butt Miller, we are committed to helping your business gain access to the knowledge, support and tools required to not only endure these changes but to come out stronger and more financially resilient. Take a look at our full suite of outsourced accounting services to learn more.

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