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Corporation tax rising: planning ahead

At the start of the new tax year we are experiencing longer days, rising temperatures and rising taxes…

The 2023/24 tax year sees the raising of corporation tax from 19% to 25% for those with profits over £250,000. If your company makes a profit of £50,000 or less, you will still pay 19% as a ‘small profits rate’.

Profits anywhere between £50,000 and £250,000 will benefit from ‘marginal relief’. This marginal relief has the effect of increasing the tax rate gradually from 19% to 25%. For a company with profits of £200,000, this means your tax, year on year, will increase by £11,250 as shown below…

2022/23 tax year 2023/24 tax year
Gross Profit 200,000 200,000
Tax 38,000 50,000
Marginal relief 0 -750
Tax payable 38,000 49,250


This could be a painful rise in tax and makes tax planning for business owners even more essential.

One of the most powerful tools for reducing your tax as a business owner is to make employer pension contributions. Pension contributions are normally a tax deductible expense providing they pass the ‘wholly and exclusively’ test. This means that HMRC deems the pension contribution to be wholly and exclusively for the employer’s trade or profession. It’s always worth checking with your accountant before making a large pension contribution to double check on this point.

Assuming the pension contribution does qualify, let’s take the above example. Let’s assume the company is owned and run by a husband and wife. If we utilise their full annual allowance for this tax year, we can reduce the tax by £36,600 whilst moving £120,000 of profits from the company balance sheet to the family balance sheet.

No pension contributions Max pension contributions
Pre pension contribution profit 200,000 200,000
Pension contributions 0 120,000
Post pension contribution profit 200,000 80,000
Tax 50,000 15,200
Marginal relief -750 -2,550
Tax payable 49,250 12,650


This is just a simple example of how much more powerful tax planning for business owners is becoming in this higher tax environment.

If you want to discuss how this might affect you, please do let us know.

Please note: Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. You should seek advice before taking any action.