Cast your mind back through the mists of time (well, to March 2021), and you may recall the Budget announcement of changes to Corporation Tax. At the time, this seemed a comfortable way off, but these changes will come into effect from 1st April 2023.

The existing flat-rate system has been in place since 2015, with company profits being taxed at a set rate of 19%. This simplified the previous system, and has helped with forward planning, as tax became standard and predictable.

However, from 1st April, the heady days of a one-size-fits-all approach to Corporation Tax will be over – and unsurprisingly, tax rates will be increasing. From then, the rate of Corporation Tax you’ll pay will depend on the level of profits you make. If you’re feeling a sense of déjà vu, you’re not alone; this new tax regime looks a lot like the one that was in place pre-2015.

So, what does this change mean for your practice?

If your company profits are less than £50,000, you’ve got the easiest ride of all, as you’ll continue to be taxed at 19%. If your profits are over £250,000, you’ll be hit the hardest, as your tax rate will jump up to 25% (AKA the ‘main rate’).

Companies whose profits fall between these limits (i.e. those with profits of between £50,000 and £250,000 per year) will pay Corporation Tax at the main rate of 25%, but this will be reduced by something called ‘marginal relief’. Basically, this provides a gradual increase in the rate of Corporation Tax as profits go up towards the main rate barrier of £250,000.

So, not only is it clear that your company will almost certainly be paying more tax from April onwards, but if you’re in this middle bracket, it’ll also be much harder to estimate how much you need to set aside – making forward planning more difficult. In essence, you’ll have less money on hand, as it may be prudent to save as if you’re paying 25%, even if you ultimately won’t be. By doing so, you’ll avoid finding yourself in a situation where you don’t have enough put by.

With this all taking place, I’ve been asked a fair few times whether it’s still worth being a company, or whether reverting to sole trader status makes more sense.

My answer is very simple: trading as a company is still the best course of action in almost all cases. Companies provide so much more than different tax rates. They also offer flexibility, and with flexibility comes options; and with options come opportunities.

Company tax savings have eroded over the last few years, but this isn’t the be-all and end-all: there are many planning opportunities available if you operate as a company. We regularly save people tens of thousands of pounds, and will continue to do so even after April 2023. While this date of change may still feel like a way off, if you want to move into a stronger position, it’s better to do so now. Although the increase in Corporation Tax rates may be out of your control, the ability to reduce your tax exposure overall is not.

What’s important to note is that there is no such thing as a quick fix, and planning will be bespoke to you and your current and future circumstances. We can make valuable tax savings in many different ways, including tax-efficient insurances, pensions and investments, which are suitable for many people. You might also consider other measures, such as increasing your marketing spend in order to increase revenue. However, to implement any changes such as these, we need time.

If you’re already a Hive client, we’ll always highlight opportunities we see, but this depends on how well you’re able to communicate with us. If we have access to your up-to-date financials, we can make informed suggestions, but numbers are only ever half of the picture. The most helpful thing you can do is to talk to us about your future plans.

All you need to do is drop us an email or give us a call: we’re always delighted to talk and learn more. And of course, if you’re not already with us, feel free to get in touch so that we can get the ball rolling for you as quickly as we can.