28 Mar ‘Associated Companies’ – will you be affected for corporation tax?
It’s very important if you run more than one company or have companies with common control/ownership that you consider whether the new corporation tax rules & rates have a bigger impact on you than first thought.
The new main corporation tax rate of 25% is introduced from 1 April 2023 but smaller companies with profits under £50,000 will continue to pay corporation tax at the lower rate of 19%.
The new rates that apply are as follows: –
Profits up to £50,000 – 19%
Profits over £250,000 – 25%
Profits between £50,000 – £250,000 – effective rate of 26.5%
HMRC have introduced a marginal relief calculator so you can check estimated corporation tax based on profits.
There are some situations where the £50,000/£250,000 bands are reduced and this is where there is existence of associated companies. If a company has one or more associated companies, the thresholds are divided by the total number of associated companies. For example, if there was 1 associated company, this would mean for the calculation that there are 2 associated companies and the bands would be divided by 2: –
Profits up to £25,000 – 19%
Profits over £125,000 – 25%
Profits between £25,000 – £125,000 – effective rate of 26.5%
Broadly, control needs to be considered in reviewing associated companies. This could be where one company controls another or whether the companies are under the same control.
Non UK companies are included in the calculation but dormant companies are excluded. There are some scenarios where a company may be associated, such as where there is substantial commercial independence between them.
If you think you might be affected and need some advice or help, please get in touch with us – firstname.lastname@example.org / 01767 312 696