Size matters…..when it comes to Corporation Tax

Jun 6, 2023 | DY News

All companies have been paying the same rate of Corporation Tax since 2015, regardless of their size. But that all changed in April!

Chancellor Jeremy Hunt raised Corporation Tax from 19% of profits to 25% – but not all Shropshire businesses will have to pay that higher rate.

“It is important to understand though that profits are not the only thing to be considered when working out which rate applies to your business.”

Client Managers’ Sarah Crane and Alan Jebb say:

“The important thresholds when determining whether 19%, 25% or a marginal rate in between are £50,000 and £250,000, however, these thresholds can become lower if a company is “associated” to other companies.”

So how does it work? Sarah and Alan explain:

“If two or more companies are controlled by the same person or group of people, they would be considered as associated.

“Family relationships also come into consideration here when deciding whether a person has control over a company. Group companies with a relationship of 51% or more would be considered as associated.”

The associated company rules also consider whether two or more entities have what is described as “substantial commercial interdependence”. If an association is identified, the Corporation Tax limits are divided by the relevant number of companies.

The revised limits will then determine the rate of tax a company will pay, based on where the profits fall. For example, a company with one associated company would be taxed on profits over £25,000, rather than £50,000 if it had no associations.

The size of a company also impacts on the frequency of Corporation Tax payments. Smaller companies are liable for Corporation Tax payments nine months after the accounting year-end, but larger firms could have to pay their bills quarterly.

Sarah and Alan say:

“Large companies with taxable profits of £1.5 million or above must pay in quarterly instalments. The associated company rules can catch businesses out here, because the £1.5 million threshold should also be divided by the number of associated companies. For example, a trading company with two 51% trading subsidiaries and profits above £500,000 must pay its Corporation Tax in quarterly instalments.”

Sarah Crane and Alan Jebb


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