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What are the new corporation tax rates?

From 1 st April 2023, the rates at which a company pays corporation tax changed. 

  • If your company made more than £250,000 profit, you’ll pay the main rate of Corporation
    Tax, which is 25%.
  • If your company made a profit of £50,000 or less, you’ll pay the ‘small profits rate’, which is
    19%.
  • In between the two bands, your corporation tax could be up to 26.5% – being the marginal rate.
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These changes have given rise to new issues that company directors need to be aware of and one of those is the concept of “associated companies”.

Do YOU have an associated company?

  • If your company controls or is controlled by another company, then you would be
    considered associated.
  • If, by yourself or with other people, have control of more than one company, you would be
    considered associated.
  • It is worth considering that HMRC determine control not only by looking at yourself but any
    connected ‘associates’, such as spouses, children, parents, and siblings. So, if two spouses
    both solely own separate companies, there is the possibility HMRC may consider them
    associated!

How does having an associated company affect the tax I pay?

The £50,000 and the £250,000 profit thresholds that are mentioned above are reduced by the total number of ‘associated companies’ your company has. This means that more of your taxable profits will be subject to the higher tax rate.

For example, take a company with profits of £40,000:

  • With no associated companies, the profits are less than the £50,000 threshold so
    corporation tax is paid at 19%.
  • With one associated company, the lower threshold is split between the two, so only on
    profits below £25,000 would they pay tax at 19%, the rest would be at the marginal rate that
    could be up to 26.5%.
  • With 2 associated companies, the lower threshold is split between the three, so only on
    profits below £16,666 would they pay tax at 19%, the rest would be at the marginal rate.

 

With these changes, now might be a very good time to consider rationalising your companies to ensure that you have control over the effect of these changes.

For advice on how this might affect you and your business, please give us a call on 01252 375466 for help.

Verity Smith ACCA

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