The first thing to note is that for businesses with taxable profits of £50,000 or less, there will be no change to the 19% rate. This is of course great news for small businesses who have been hit hard by the pandemic.
So, who will be paying 25% corporation tax? Well, the full 25% rate will only apply if taxable profits exceed £250,000. Profits falling between the lower threshold of £50,000 and the upper threshold of £250,000 will be taxed at a tapered rate (effectively a sliding scale between 19% and 25%).
What is equally notable is that this change does not actually take effect until the Financial Year (1st April to 31st March) 2023/24. This means all companies will still pay Corporation tax of 19% on profits right up to 31st March 2023.
For business whose profits are over the small profits rate, it will be important to think about the timing of investment decisions, and the use of corporation tax losses that may have accumulated in the past. Carrying tax losses back for a repayment may not be the best decision if you can offset against profits taxed at 25% in the future.
The real question now though is perhaps this: will these changes happen in the way they have been laid out in the budget? If we’ve learned anything over this past year, it’s that things can change very quickly. With over 2 years before these rules are due to come in, it wouldn’t be surprising if there were further tweaks to this ruleset.