News

As of 1 April 2023, the Corporation Tax rate has increased from 19% to 25% for companies with profits over £250,000. Companies with profits under £50,000 will continue to pay 19%, companies in between the two thresholds will suffer an effective rate of 26.5%. These profit thresholds are divided equally between any associated companies.

A company is associated with another company if one controls the other, or if they are both under common control. In defining control HMRC looks at ownership of shares, voting rights and rights to distributable profits or assets on a winding up. The rights of spouses, civil partners and connected persons are taken into account where there is substantial commercial interdependence which can be financial, economic or organisational.

For example, a company controlled by a spouse could be related if:

• one company gives financial support to the other
• one undertakes activities which benefits the other
• they have common customers
• companies share the same management

As well as the Corporation Tax thresholds being split equally between associated companies, so are the thresholds that determine whether a company has to make in year Corporation Tax payments on account. When profits exceed £1,500,000 Corporation Tax switches to being paid in quarterly instalments instead of nine months and a day after the year end. This £1,500,000 threshold may seem large, but where there are say 3 associated companies this threshold would reduce to £500,000. This can be a strain on cash flow as more tax is paid sooner.

If you want to discuss how these changes affect your business don’t hesitate to contact our Corporate Tax Consultant Hannah Reay on 01228 711888