Associated company Corporation Tax rules

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Associated company Corporation Tax rules
Patrick Leavy

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Associated company Corporation Tax rules
Patrick Leavy

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Associated company Corporation Tax rules

As announced in the Budget earlier this year, there will be two rates of Corporation Tax from 1 April 2023. When the new rules take effect, taxable profits up to £50,000 will continue to be taxed at 19% under the new Small Business Profits Rate. Taxable profits of more than £250,000 will be taxed at 25%. 

The introduction of the two new rates will once again make associated companies important to consider. Under the new rates, profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and short accounting periods.

A company is an ‘associated company’ of another company if one of the two has control of the other or is under the control of the same person or persons. 

The £250,000 limit will be divided by the total number of associated companies. For example, if two companies are deemed to be associated, both companies would pay the main Corporation Tax rate of 25%, from 1 April 2023 at half the usual threshold, namely at £125,000 rather than £250,000. 

HMRC’s manuals clarify that a company may be an associated company no matter where it is resident for tax purposes. So if these new rules affect you please get in touch as we have a team available to help you.

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