Corporation tax

What retailers need to know about the new corporation tax changes

Kevin Bannister, MD of The Accurate Accountant, explains how new corporation tax changes will affect KBB retailers and what they can do to lessen the impact on their business

As a KBB retailer, you have faced various challenges over the past few years, such as the Covid-19 pandemic and the ongoing war in Ukraine, which have caused the current cost-of-living crisis.

Taxable Profits£50,000£100,000£150,000£200,000£250,000
Tax in 2022 (£)£9,500£19,000£28,500£38,000£47,500
Tax in 2023 (£)£9,500£22,750£36,000£49,250£62,500
Increase in Tax (£)£0£3,750£7,500£11,250£15,000
Effective Tax Rate (2022)19%19%19%19%19%
Effective Tax Rate (2023)19%22.75%24%24.63%25%

After all of this, you would think that you have enough to deal with as a business owner, but the Government has decided to push on with increasing the corporation tax that your business has to pay. It is crucial to understand how these changes will affect you and the steps you can take to mitigate any negative impacts.

The Government announced that the corporation tax rate would increase from 19% to 25% starting from April 2023. This increase of 6% may have been pitched as only affecting big companies, but it will affect the majority of retailers. So the average owner-managed business has in general ignored the change and for good reason, as they have assumed it would not affect them.

If your business makes profits of less than £50,000, you will still pay 19% corporation tax. However, if you go over £50,000, you will be charged 25% corporation tax and receive a credit through something called marginal relief. Instead of quoting lots of numbers and rates, I have included all of this in the table above, showing the tax changes in this current year against last year.

So, what can you do about it?

  • REVIEW YOUR BUSINESS STRUCTURE: New corporation tax rules may impact businesses differently. Therefore, retailers should consider reviewing their business structure to ensure it is tax-efficient.
  • MAXIMISE ALLOWABLE EXPENSES: Retailers should make sure that they are claiming all allowable expenses, such as staff salaries, rent, and materials.
  • UTILISE TAX RELIEFS: Retailers can take advantage of tax reliefs, such as capital allowances, Annual Investment Allowance (AIA) and research and development (R&D) tax credits, to reduce their corporation tax bill. If a retailer invests in new assets, they should be able to claim capital allowances on the cost.
  • PLAN AHEAD: Retailers should always look to plan their finances and tax liabilities in advance by projecting their profits, estimating their tax bills, and setting aside funds to cover these.
  • SEEK PROFESSIONAL ADVICE: Retailers should seek advice from a qualified accountant who can help them navigate the new corporation tax changes and identify opportunities specific to their business.

You will see from the table that the effective rate of tax for £150,000 profit goes from 19% last year straight up to 24% the next year.

This corporation tax increase is likely to affect retailers in several ways. The increased tax rate will that retailers have to pay more tax on their profits, which will reduce the amount of money available for investment and growth. It may also affect retailers’ cash flow, as they may not have been expecting the changes to apply to them.

This corporation tax change is going to impact retailers, there is no question about that. It will mean that retailers will have to pay more tax on their profits than in previous years, which may reduce the amount of money available for investment and growth.

However, if they take the steps I have outlined here (see box on left), they will be in a stronger position than other retailers in the long term.

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