Corporation tax rates and capital allowance super deductions changes

February 20, 2023

The March 2021 budget abolished the single corporation tax rate, which has been applied since 2015. From 1 April 2023, the main corporation tax rate shall increase to 25% for all companies with profits exceeding £250,000. A hybrid rate will apply where the year-end accounting straddles 1 April 2023.

Companies with less than £50,000 profits will continue to be taxed at 19%, while those with profits between £50,000 and £250,000 at 25%, reduced by marginal relief. Although marginal relief reduces the corporation tax payable, any profits that fall between £50,000 and £250,000 are taxed at an effective tax rate of 26.5%.

130% Super Deductions

The capital allowance super deduction of 130% will end on 31 March 2023. Where qualifying expenditure is made before 31 March 2023, companies can claim a first-year super deduction of 130%. For accounting periods straddling 1 April 2023, the super deduction rate will be proportionately reduced from 130%.

In most cases, anything that would otherwise qualify for capital allowances as main pool plant & machinery, will be eligible for the super-deduction. Still, some exceptions exist, such as second-hand or used assets, motor vehicles or long-life assets.

From 1 April 2023, the capital allowances regime will revert to where it was pre-1 April 2021, with companies having a £1m annual investment allowance giving 100% relief on qualifying plant and machinery and integral features, and thereafter writing down allowances at 18% or 6%

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