The corporation tax increase to 25% will affect companies with profits of £250,000 and over. Small companies with profits up to £50,000 will continue to pay corporation tax at 19% (known as the ‘small profits rate’).
Those companies with profits between £50,000 and £250,000 will be charged at 25% but subject to reduction by marginal relief however the effective rate of tax becomes 26.5% due to the way the calculation works, so it may not look tax efficient to have profits between £50,000 and £250,000.
Please note the upper and lower limits are reduced where there are ‘associated companies’ ― in such cases, the profit limits are divided equally among all of the associated companies(*). Please note that dormant companies are exempt from this rule.
Where an accounting period does not fall entirely within one financial year, profits of an accounting period will be apportioned on a time basis to the financial years in which the period falls.
Close investment-holding companies that fall within the CIC definition in CTA 2010, s. 18N may not claim the small profits’ rate or marginal relief unless they exist wholly or mainly the purpose of trading commercially or investing in land for letting to unconnected persons or acting as a holding or service company within a group which exists wholly or mainly to trade or invest in land for letting.
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