From 1 April 2023, the rates of UK corporation tax will change; it's important to understand how the associated company rules may impact the amount of tax charged.
A 25% rate of corporation tax will apply to all of a company’s profits if they exceed £250,000 from 1 April 2023. The 19% rate will continue to apply where profits are below £50,000. The marginal rate that applies between those limits will be 26.5%.
Those upper and lower limits are divided by the number of “associated companies” in the accounting period. This is not merely companies in the same 51% group but also includes companies under common control, for example where the same individual controls two standalone companies.
So, if Fred controls Bloggs Trading Ltd and also Bloggs Lettings Ltd the limits become £125,000 and £25,000. If Bloggs Trading Ltd has profits of £200,000 in year ended 31 March 2024 then the 25% rate will apply to all of that company’s profits.
Once the new rules come into effect, some small groups might achieve tax savings by restructuring the businesses by the transfer of trades to a single operating company, leaving the other companies dormant as those companies would not normally be counted as associates. A careful analysis of the position is required and we are able to assist with this if required.
Contact us today if you would like to discuss the new rules or if you have any questions that we can help you with. Or visit us at our Edinburgh or Kirkwall offices.