ATT: Corporation tax rise will increase complexity

The introduction of a new small profits rate for corporation tax from 2023 will increase complexity, according to the Association of Taxation Technicians (ATT).

In the Spring Budget 2021, Chancellor Rishi Sunak announced the main corporation tax rate will increase from 19% to 25% for firms with profits over £250,000.

A new small profits rate of 19% will be introduced for businesses with profits up to £50,000.

Jeremy Coker, president of the ATT, said although the small profits rate will protect smaller firms from the increase in corporation tax, it will add further complexity.

He said as a result of marginal relief, business with profits which fall between the £50,000 and £250,000 relief band could also be subjected to a higher tax rate of around 26.5%.

Coker added:

“Introducing marginal relief removes an otherwise unwelcome cliff-edge effect which would otherwise mean that a small increase in profits would make corporation tax rates shoot up. 

“But we know from past experience that marginal relief calculations can be complicated, and make estimating future tax bills tricky.

“The reintroduction of the small profits rate may therefore be welcome by the smallest companies, but might cause headaches for those whose profits lie in the middle ground.”

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The Association of Independent Professionals and the Self Employed