October 2023

From 1 April 2023 the rate of corporation tax that a company pays depends on the level of the company’s profits and the number of “associated companies”. “Associated companies” are those under common control, which may include companies controlled by close relatives under certain circumstances.

Assuming a company has no “associated companies” then the 19% corporation tax rate continues to apply where profits are no more than £50,000 and the 25% corporation tax rate applies where profits exceed £250,000 a year. The £50,000 and £250,000 limits are divided by the number of “associated companies”.

In between the limits there is marginal relief to achieve the transition between 19% and 25%. The marginal tax rate between £50,000 and £250,000 is 26.5% and thus tax planning can be particularly effective.

For example buying new equipment or paying additional pension contributions on behalf of the directors would potentially save 26.5% corporation tax. Timing of expenditure is critical here, as the expenses would need to be incurred before the year end. We would recommend a review at least 2 months before the company’s year-end, with reliable profit forecasts available to allow time for pre-year-end planning.

When are companies associated?

“Associated companies” for corporation tax purposes are those under common control. The most obvious situation is where one of the companies has control of the other, or both of the companies are under the control of the same person or persons. In determining control, the rights and powers of an individual’s associates, broadly close relatives, may be taken into consideration, but only where there is substantial commercial interdependence between the two companies.  This could be financial, economic, or organisational interdependence and will depend on the facts of each case. An example would be where a brother and sister each have their own limited company and there is a large loan or significant trading between them, such that one is dependent upon the other.

This is not a straightforward area and we can, of course, assist you in identifying the number of associated companies.

Of course, we at Humphrey & Co are always on hand to assist you with providing and managing some of your tax information. However, we do recognise that there may be instances where you may need access to this tax information.  HM Revenue & Customs provide a secure online facility to allow individuals to check, update and manage their tax details, with the aim of contacting HMRC more quickly and easily.

The service allows you to:

• Check your income Tax estimate and tax code
• Check your state pension
• Check income from employment and how much tax you have paid in the previous 5 years
• Check or update your Marriage Allowance.
• Telling HMRC about a change of address
• Check or update benefits you receive from employments such as company car and medical insurance benefits.
• Find your NI number and Unique Taxpayer Reference (UTR) (if applicable)

To sign up , please visit Personal tax account: sign in or set up - GOV.UK (www.gov.uk)

To do so, you will need to register for a Government Gateway account and provide personal data to prove your identity. When applying for a government gateway account for the first time, you will need to provide your National Insurance number or postcode plus 2 of the following:-

• A valid UK passport
• UK Photocard driving licence issued by the DVLA
• A payslip from the last 3 months or P60 from your employer
• Details from a Self-Assessment Tax Return if you have submitted one previously
• Information held on your credit record
• Details of a tax credit claim if you made one

Once you have enrolled, you will then be able to access the Personal Tax account.

HMRC also has a dedicated App, for more information and details on how to access the app please visit the HMRC website - Download the HMRC app - GOV.UK (www.gov.uk)