Changes to corporation tax rates and deadlines

Companies with accounting periods beginning on or after 1 April 2023, are subject to a subtle, yet potentially significant change in legislation. The new rules impact both the rate companies pay corporation tax as well as corporation tax payment deadlines.

Associated companies

The relevant thresholds* for both corporation tax rates and whether corporation tax is paid in quarterly instalments (QIPs) will be divided by a company’s number of ‘associated companies’. The legislation broadly defines associated companies as those under ‘common control’, which includes companies that fall outside a 51% group (or, indeed, outside a group all together but still under common control) but excludes dormant companies.

‘Control’ in these circumstances can be determined in a number of ways. However, the most common test to determine if control exists is to ascertain if a shareholder owns more than 50% of the shares in the company.

It’s also important, when deciding if a person has control, to make sure the shares owned by their ‘associates’ are also considered. Associates include, but are not limited to, a husband, wife, a child, parent, brother, sister, business partners, or the trustees of a trust.

The wide definition of control and the requirement to include associates casts the net wide, although in some cases the rights and powers of associates are only taken into account to determine control where there is ‘substantial commercial interdependence’ between the companies in question.

Substantial commercial interdependence occurs where one company gives financial support (directly or indirectly) to the other, or each company has a financial interest in the affairs of the same business. Economic and organisational interdependence should also be considered.

Corporation tax rates

Profit limits for determining the rate of tax will be divisible by the number of associated companies. This will be of particular relevance for smaller companies. For example, if a company has four other associated companies (so five in total) the limits are taxable profits of:

• Taxable profits < £10,000 (£50,000/5 associated companies) – taxed at 19%

• Taxable profits > £50,000 (£250,000/5 associated companies) – taxed at 25%

• Taxable profits £10,000<>£50,000 – taxed at a marginal rate

Corporation tax payment dates

The other thing to consider is whether a company will need to make QIPs in respect of their corporation tax liability. This will be of particular relevance for larger companies. Again, the profit limits will be divided by the number of associated companies, superseding the concept of a 51% related company. This means that the limits for quarterly instalments for five associated companies would be:

• Taxable profits > £300,000 (£1.5m/5 associated companies) – payments due in instalments starting seven months after the start of the accounting period and three-monthly thereafter (due on 14^th).

• Taxable profits> £4m (£20m/5 associated companies) – payments due in instalments starting three months after the start of the accounting period and three-monthly thereafter (due on 14^th).

As demonstrated above, associated companies can have a significant impact on a company’s corporation tax liability and payments. Therefore, careful consideration needs to be given around the meaning of control and substantial commercial interdependence to determine associates and the position for each company individually.

Need help?

If you have any queries about anything covered in this blog, please get in touch with your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Melissa Muscat

*Relevant profit thresholds for corporation tax rates 

• < £50,000 – lower limit taxed at 19%
• > £250,000 – upper limit taxed at 25%
• £50,000>< £250,000 – taxed at a marginal rate

Relevant profit thresholds for corporation tax instalments:

• > £1.5m – deemed a large company for corporation tax (generally a company must be in excess of this limit for two consecutive accounting periods)
• > £20m – deemed a very large company for corporation tax

The above profit thresholds are proportionately reduced for short accounting periods and by the total number of associated companies.