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October 16, 2013
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Rates of Corporation Tax - Update (October 2013)

The rate of corporation tax for small companies has been held at 20% by the UK since 1 April 2011.

However, since this date the main rate of corporation tax has dropped and is due to continue to be reduced in line with the current government plans, as follows:-

  • 2010   -      28%
  • 2011   -      26%
  • 2012   -      24%
  • 2013   -      23%
  • 2014   -      21%
  • 2015   -      20%

Of interest to the directors of profitable private limited companies, is the knock on effect which these reductions have on the 'marginal rate' of corporation tax (for businesses with taxable profits between the upper and lower limits), which are affected as follows:-

  • 2010   -      29.75%
  • 2011   -      27.50%
  • 2012   -      25.00%
  • 2013   -      23.75%
  • 2014   -      21.25%
  • 2015   -      20.00%

The reduction in the marginal rates has two significant planning consequences for shareholder/directors of small to medium limited companies:-

1)  The effect of breaching the lower threshold of profits for a small company (£300,000) and going into marginal rates, is going to less significant in terms of the extra tax that is due by a company

2)  The existence of more than one company controlled by a director/shareholder (ie associated companies) will have less chance of materially increasing the tax rate payable by the companies under their control.

This means that establishing additional companies in order to separate trades will have less of a negative corporation tax effect than in previous years. Although other taxes should be born in mind, as well.

Of course it has to be born in mind that future governments could once again increase the main rate of tax, which once again could penalise entrepreneurs with multi-co set ups.

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