How Much is Corporation Tax?
Understanding these rates and rules is crucial for effective tax planning and compliance. Companies should ensure they are correctly categorizing their profits and taking advantage of available reliefs, especially the beneficial Patent Box regime for qualifying profits.
For the financial year beginning 1 April 2024, the main corporation tax rate is 25%, applying to companies with profits over £250,000. A lower rate of 19% applies to profits below £50,000, with a sliding scale for profits between £50,000 and £250,000. Companies with associated companies will have their profit limits adjusted accordingly. The Patent Box regime allows a reduced tax rate of 10% on profits from patented inventions, promoting innovation and development.
Corporation Tax Rates
Main Rate:
The main rate of corporation tax is 25% for the financial year beginning 1 April 2024. This rate applies to companies with profits exceeding £250,000.
Lower Rate for Smaller Profits:
For UK resident companies with augmented profits below £50,000, a lower rate of 19% is generally applicable.
Marginal Relief:
Companies with augmented profits between £50,000 and £250,000 benefit from a sliding scale of tax rates. This marginal relief helps to transition from the lower rate to the main rate smoothly.
Associated Companies:
If a company is part of a group with associated companies, the profit limits are divided by the number of active companies worldwide. This ensures that the thresholds for the lower and main rates are appropriately scaled down for each associated company.
Patent Box Regime
Lower Effective Rate:
Where taxable profits are attributable to the exploitation of patents, a lower effective rate of tax is applicable. The rate is 10%.
Inclusions in Patent Profits:
Profits eligible for this lower rate can include not just income from patent royalties but also a significant part of the trading profit from the sale of a product that incorporates a patented invention.
Example Calculations
Company with Profits Over £250,000:
A company with profits of £300,000 will be taxed at the main rate of 25%.
Tax payable: £300,000×0.25 = £75,000.
Company with Profits Between £50,000 and £250,000:
For a company with profits of £150,000, the tax rate will be on a sliding scale between 19% and 25%.
The exact tax calculation would involve marginal relief, which provides a gradual increase in the effective tax rate as profits increase.
Company with Profits Below £50,000:
A company with profits of £40,000 will be taxed at the lower rate of 19%.
Tax payable: £40,000×0.19 = £7,600.
Patent Box Example:
A company with profits of £500,000, where £100,000 of this is attributable to patented products, will pay a reduced tax rate on the patented profits.
Tax on patented profits: £100,000×0.10 = £10,000.
Tax on remaining profits: £400,000×0.25 = £100,000.
Total tax payable: £10,000+£100,000 = £110,000
Other Articles
How to Calculate Corporation Tax
Can You Pay Corporation Tax in Instalments?
Need to file your Corporation Tax Return?
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