The Corporation Tax landscape changed significantly on 1st April 2023, with changes to the Finance Act 2021, but with so many other major reforms affecting businesses, it may have slipped somewhat under the radar. If you own multiple companies or have business connections through family relationships, these changes could have a significant impact.
We’ve seen a number of business owners caught off guard because they didn’t understand how their corporate structure now affects their tax position, so we’re here to help explain it.
What are the rules?
The Government reintroduced a tiered system, meaning Corporation Tax is calculated based on profit thresholds. Since 1st April 2023, Corporation Tax rates have remained at:
- 19%on profits up to £50,000
- 25%on profits over £250,000
- Marginal relief applies to profits between these two thresholds
But here’s the catch. If you have associated companies, these profit limits are divided between all your associated companies.
Previously, only companies in formal 51% groups were affected. Now, any companies under common control with business links are considered associated, even if they operate in completely different sectors.
The meaning of control is different within these rules too. It’s not just about ownership over 50%, control can mean having voting rights, entitlement to assets or income, and practical influence over company decisions, so even smaller stakes can equate to control.
What makes companies “associated”?
The rules are broader than many business owners expect. Companies are associated when:
- One controls the other, or
- Both are controlled by the same person or group
This includes companies owned by you, your spouse, partner or close family members. It’s not just about who owns the business, but about whether there’s common control and a meaningful business connection between them.
Overseas companies can also count as associated, so you need to take a global view of your corporate structure, to make sure you have all your bases covered.
Even companies that seem unrelated, for example, if they work in different sectors or countries, may still be considered associated if they share ownership and have significant business links.
How do I identify a business link?
HMRC aims to understand if there is substantial commercial interdependence. They look for:
- Financial links – where one company financially supports the other, or shares resources
- Economic links– where companies service the same customers or rely on each other
- Organisational links– where companies have shared management, premises or staff
What does this mean for your business?
Multiple companies mean profit thresholds. A business owner with four companies sees each company’s small profits threshold drop to just £12,500. What was once comfortably within the 19% Corporation Tax rate bracket may now attract the higher 25% rate.
The £1.5 million threshold for “large” companies will also be divided between associated companies. For example, if you have four associated companies with profits over £375,000, they’ll now fall into the quarterly payment regime – a significant cash flow consideration.
Finally, you’ll need to keep track of all your associated companies and report this information on your CT600 returns – getting it wrong can lead to penalties and interest charges.
What action can you take?
Step one is to review your company structure. Ask yourself if all your companies are still needed, or if restructuring can help to reduce your tax burden whilst maintaining operational flexibility.
Review any dormant companies, and if they no longer serve a purpose consider closing them to save yourself a headache down the line.
Perhaps most importantly, speak to us. The Champion team is here to help you navigate these complex rules and ensure your business and tax is structured efficiently. To find out more, contact David Herd, group partner, on David.Herd@championgroup.co.uk or 0161 703 2500
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