An £18 billion hole-plugging reversal on the cut to corporation tax has been announced by Liz Truss.
In the wake of the resignation/sacking of previous Chancellor Kwasi Kwarteng, Liz Truss announced at a press conference this afternoon that former health and foreign secretary Jeremy Hunt will be stepping in as new Chancellor. She also announced the reversal of previous plans to cut corporation tax to 19 percent from April 2023.
Under the new proposal, corporation tax will indeed be raised to 25 percent next April as per previous-previous-Chancellor Rishi Sunak's plans.
If the proposals as put forth by Sunak are kept, the following will apply to incorporated business from next year:
- Main Rate of corporation tax 25 percent.
- A small profits limit of £50,000 - vastly lower than the last time split rates existed in 2014/2015.
- A small profits rate of 19 percent with marginal rate applied for profits between £50,000 and £250,000 - using a 3/200ths fraction to taper the main rate in.
The changes will have a knock on effect for many small businesses, and freelancers/contractors using PSCs and taking dividends.
A business with pre-tax profits of £100,000 will see a £3,750 increase in their CT bill.
A freelancer with a £100,000 pre-tax profit and opting to take a combination of dividends and secondary threshold salary will see a £1,220 overall reduction in net take home. The actual corporation tax increase would be £3,100 but offset by the lower tax (2.5%) paid on the dividend next year.
Our calculators are now updated so you can use our dividend v salary calculator and corporation tax calculator to see the effects.