Tax Partner Newby Castleman LLP
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The Chancellor Rishi Sunak leaving No.11 Downing Street on his way to deliver his budget speech
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Budget 2021: Corporation tax to rise with complications

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From 1 April 2023 corporation tax will increase to 25%, but companies with profits of up to £50,000 will pay tax at 19%, and a tapered rate will apply to profits up to £250,000.

3rd Mar 2021
Tax Partner Newby Castleman LLP
In association with
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Marginal relief for corporation tax, which many accountants bid a fond farewell to in 2015, is reintroduced and will apply where a company’s profits fall between £50,000 and £250,000.

The return to a small profits rate corporation tax regime adds unwelcome complexity. But there is one glimmer of good news for groups, as the £50,000 and £250,000 thresholds will be calculated based on the 51% related group company definition, rather than the previous (stricter) associated company rules. Some limited planning may therefore be possible.

Many companies will have made losses during the Covid-19 pandemic, and additional relief is provided for loss-making business in the form of an extended three year carry back for up to £2m of losses per group in each of the financial years 2020/21 and 2021/22. 

This £2m cap applies only to the extended carry back, ie there is no change to the unlimited carry back of losses to the previous 12 month accounting period. 

Groups will be required to nominate a company to submit a loss allocation statement where any member of the group claims to carry back a loss of more than £200,000 under the extended carry back rules.

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Replies (5)

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By mjswebster
03rd Mar 2021 22:32

You say "But there is one glimmer of good news for groups, as the £50,000 and £250,000 thresholds will be calculated based on the 51% related group company definition, rather than the previous (stricter) associated company rules."?

But the HMRC guidance rather suggests the opposite: "The related 51% group company test at S279F to S269H CTA 2010 will be repealed and replaced by associated company rules."

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By tonyaustin
04th Mar 2021 12:56

Jacquelyn, the Policy Paper published by HMRC states that the 51% rule will be abolished and associated companies must be taken into account to determine level of company profits for the small profits rate. It will therefore be necessary to find out who controls the company and how many other companies that person controls.

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By North East Accountant
11th Mar 2021 09:33

Does anyone know the marginal rate for profits between £50K and £250K?

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Replying to North East Accountant:
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By Howard Walters
11th Mar 2021 09:46

I calculate it to be 26.5%.

£50,000 at 19% + £200,000 at 26.5% = £62,500 - which equates to £250,000 at 25%.

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By schocca
11th Mar 2021 10:35

All - Please note that Close Investment Holding Companies will pay 25% CT across ALL their profits from 2023 - this is one of the "the devil is in the detail" budget items:

https://www.gov.uk/government/publications/corporation-tax-charge-and-ra...

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