Corporation tax is a tax levied on the profits of UK-resident companies and non-UK resident companies that carry out trade in the UK. It is one of the major sources of revenue for the UK government, and it is charged on a company’s taxable profits. The rate of corporation tax in the UK has varied over the years, and it is subject to change.

In April 2021, the UK corporation tax rate was 19%, which was the lowest in the G7 group of countries. However, the UK government has announced plans to increase the rate to 25% from April 2023, as part of efforts to raise revenue and reduce the budget deficit resulting from the COVID-19 pandemic.

The increase in the corporation tax rate has been met with mixed reactions. Supporters argue that it is a necessary measure to help fund public services and support the economy, while critics argue that it could deter foreign investment and harm business competitiveness.

The increase in the corporation tax rate will have a significant impact on businesses operating in the UK. Companies with profits of less than £50,000 per year will continue to pay the current rate of 19%. For those with profits between £50,000 and £250,000, a tapered rate will apply, while companies with profits above £250,000 will be subject to the new rate of 25%.

There are a number of deductions and allowances that companies can claim when calculating their taxable profits, including capital allowances for investments in plant and machinery, research and development (R&D) tax credits, and relief for losses incurred in previous years.

R&D tax credits are particularly important for companies that invest in innovation and research. The UK government offers generous tax relief for companies that undertake R&D activities, which can help to reduce their corporation tax liability.

There are also a number of taxes planning strategies that companies can use to manage their corporation tax liability. For example, companies can use transfer pricing to allocate profits between different countries in which they operate, in order to take advantage of lower tax rates. However, transfer pricing must be done in accordance with the rules set out by HM Revenue and Customs (HMRC), and failure to comply can result in penalties and fines.

In addition to corporation tax, companies in the UK are also subject to other taxes, such as value-added tax (VAT), employment taxes, and business rates. VAT is a tax on sales of goods and services, while employment taxes are levied on employers for their employees’ wages and salaries. Business rates are a tax on non-domestic properties, such as offices, shops, and factories.

In conclusion, corporation tax is an important source of revenue for the UK government, and it is subject to change. The increase in the corporation tax rate from 2023 will have a significant impact on businesses operating in the UK, and companies will need to carefully manage their tax liabilities. However, there are a number of deductions, allowances, and tax planning strategies that companies can use to reduce their corporation tax liability, while still complying with HMRC regulations.