As announced in the Budget earlier this year there will be two rates of Corporation Tax from 1 April 2023. When the new rules take effect, taxable profits up £50,000 will continue to be taxed at 19% under the new Small Business Profits Rate. Taxable profits more than £250,000 will be taxed at 25%. 

The introduction of the two new rates will once again make the issue of associated companies important to consider. Under the new rates, profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.

A company is an ‘associated company’ of another company if one of the two has control of the other, or both are under the control of the same person or persons. 

The £250,000 limit will be divided by the total number of associated companies. For example, if two companies are deemed to be associated, both companies would pay the main CT rate of 25%, from 1 April 2023 at half the usual threshold, namely at £125,000 rather than £250,000. 

HMRC’s manuals make it clear that a company may be an associated company no matter where it is resident for tax purposes.

There are special tax reliefs for pre-trading expenses that are incurred before a business starts trading. These could include expenses that are required to help a business prepare for trading such as buying stock and equipment, renting premises, taking out insurance and initial advertising expenditure. 

A deduction may be allowed where the following conditions are met: 

• The expenditure is incurred within a period of seven years before the date the trade, profession or vocation commenced, and
• the expenditure is not otherwise allowable as a deduction in computing the profits of the trade, profession or vocation but would have been so allowable if incurred after the trade had commenced.

To be allowable, the pre-trading expenditure must be incurred wholly and exclusively for the purposes of the relief. This means that no relief would be allowed where pre-trading expenses would not have been tax deductible if they had been incurred when the business was trading.

The business should keep accurate records relating to pre-trading expenditure to demonstrate that the expenses qualify.

Qualifying pre-trading expenditure is treated as incurred on the day on which the trade, profession or vocation is first carried on. 

Capital expenditure does not qualify for this relief but there are other special provisions for capital allowances. 

HMRC must be informed when a non-trading or dormant company starts trading again and becomes active for Corporation Tax. Companies can use HMRC Online Services to supply the relevant information. 

When a company has previously traded and then stops, it would normally be considered as dormant. A company can stay dormant indefinitely, however there are costs associated with doing this and certain filings must still be made to Companies House. The costs of restarting a dormant company are typically less than starting from scratch again. 

The following steps are required:

1. Tell HMRC that your business has restarted trading by registering for Corporation Tax again.
2. Send accounts to Companies House within 9 months of your company’s year end.
3. Pay any Corporation Tax due within 9 months and 1 day of your company’s year end.
4. Send a Company Tax Return – including full statutory accounts – to HMRC within 12 months of your company’s year end.

Whilst reporting dates for annual returns and accounts should remain the same. The Corporation Tax accounting period is different and is set by reference to when the company restarts business activities.

The new super-deduction tax break, that will allow companies to deduct 130% of the cost of any qualifying investment from their taxable profits, is available on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 a company invests they can reduce their Corporation Tax bill by up to 24.7p. The new temporary tax relief applies on qualifying capital asset investments from 1 April 2021 until 31 March 2023. 

The super-deduction is designed to help companies finance expansion in the wake of the coronavirus pandemic and help to drive growth. This change makes the Capital Allowance regime more internationally competitive, lifting the net present value of the UK’s plant and machinery allowances from 30th in the OECD to 1st.

Commenting on the introduction of the super-deduction, the Chancellor of the Exchequer Rishi Sunak said:

'The super-deduction is the biggest two-year business tax cut in modern British history – driving our economy by helping businesses to invest, grow and support our Plan for Jobs. I urge firms across the UK to invest in our recovery by taking advantage of this great opportunity.'

An enhanced first year allowance of 50% on qualifying special rate assets has also been introduced for expenditure within the same period. This includes most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. 

The measures have effect in relation to qualifying expenditure from 1 April 2021 and excludes expenditure incurred on contracts entered into prior to Budget day on 3 March 2021. 

The Chancellor confirmed that the Corporation Tax main rate will remain at 19% from 1 April 2021 for the next 2 years. The main rate had been expected to increase to help pay the massive costs of the coronavirus pandemic to the public purse. 

However, the Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. The Chancellor also announced the introduction of a Small Profits Rate (SPR) of 19% from the same date for companies with profits of up to £50,000. 

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

The Diverted Profits Tax (DPT) will increase from 1 April 2023 from 25% to 31% to maintain the current 6% differential with the main rate of Corporation Tax. The DPT is an anti-avoidance measure that targets large multinational businesses that are deemed to be using contrived and artificial arrangements to divert profits overseas thereby paying less or no tax in the UK.

This announcement gives some short-term relief to businesses, many of whom had expected rates to increase before April 2023.