Riding the Wave of Corporation Tax Changes: A Guide for Contractors, Freelancers, and Small Businesses

If you’re a contractor, freelancer, or small business owner in the UK, you might have felt a bit of a shake-up in April 2023. That’s when the Government decided to give the old Corporation Tax a bit of a boost, raising it from 19% to 25%. You’re probably wondering how this change has impacted your limited company’s tax bill. Well, let’s dive right in and find out.

The Corporation Tax Saga

Let’s take a moment to look back at the journey of this tax hike. It all started in March 2021 when the Government first announced the rise in Corporation Tax. But then, plot twist! In September 2022, they decided to scrap it during the ‘Mini Budget’. Fast forward a month, and they did a U-turn, bringing back the rise. Talk about drama!

So, What Does This Mean for Your Business?

Now, onto the good stuff – how does this impact you and your business? The change in Corporation Tax is a sliding scale situation. If your annual profits are £50,000 or less, you’re still cruising at the 19% rate. If your profits soar to £250,000 or more, you’re in the 25% club.

What if you’re somewhere in between? That’s where ‘marginal relief’ comes to the rescue. This applies to profits between £50,000 and £250,000, with a tax rate reaching up to 26.5%.

Associated Companies and Marginal Relief

Got more than one limited company under your belt, and they’re associated (meaning, controlled by the same owners)? The £50,000 and £250,000 thresholds have been trimmed down. For instance, if you have two associated companies, your new thresholds are £25,000 and £125,000.

Impact on Your Pocket

Let’s talk numbers. Say your company makes £60,000 in annual profits. Under the new rules, your Corporation Tax liability is now £12,150. That’s £750 more than you were paying last tax year. If your company makes £100,000, your new tax bill would be £22,750 – a jump of £3,750 from before. Despite the hike, the Government anticipated that about 70% of companies would still be paying the 19% rate.

A New Hurdle for Contractors

Let’s face it, contractors have had their share of tax challenges. From IR35 to dividend tax hikes and VAT restrictions, these changes have impacted your take-home pay. Now, this Corporation Tax rise is another hurdle you’re having to leap over.

The Wrap Up

These Corporation Tax changes are a big deal, and it’s normal to feel a bit unsure. But remember, knowledge is power. Understanding these changes is the first step to navigating them successfully.

Here at PaperRocket Accounting, we’re all about helping you make sense of these changes. If you’re scratching your head or just want to chat about how these changes have affected your business, please give us a shout.

PaperRocket are a multi award winning accounting practice, and Accredited FreeAgent Practitioners. 

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.

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