I am no economist, so I do not really understand the thought process of raising Corporation Tax at a time of high inflation. To me, the aim of raising Corporation Tax, in addition to feeding money into the treasury, is designed to encourage spending by companies. But surely this will feed inflation?

This week, I have had several conversations with business owners who are baffled, annoyed, and frustrated with the corporation tax rise.

Why has this become a topic of conversation now?

Business owners are starting to see the effect that the 25% Tax Rate is going to have on their P&L’s in their budgets and management accounts.

This is making some business owners think twice about their plans for the next year and reconsider decisions on whether to invest or not. The feedback we are getting is that many are thinking of holding back, which is the opposite of the government intentions.

Saving Corporation Tax

Many business owners have mixed views on saving Corporation Tax – on one hand paying a decent amount of corporation tax means you are profitable business, but there’s no denying it hurts to see the fruits of your labour going on tax.

The only way to save Corporation Tax is to reduce profits, and the only way to do this is to buy assets or increase expenses. The best way to increase expenses while enjoying the benefit of that expense, is to make a pension contribution to the directors. Read our Factsheet: Tax Efficient Ways of Getting Paid From Your Company.

It should be noted that there is a tiered system with profits up to £50K charged at 19% and profits above £250k charged at 25%, and those in between are a hybrid of the two. So, there is a nod to smaller businesses with profits below £50K which, according to the government, make up 70% of all Ltd companies.

The Economy

The jury is out on whether the Corporation Tax rate will negatively affect the economy; to me, it seems the wrong time to be doing this.

If you are worried about the increased cost of Corporation Tax, then contact us to consider the above and other tax planning ideas.