As the number of associated companies lowers the thresholds that determine whether corporation tax is due 9 months and 1 day after the end of an accounting period, or by way of quarterly instalments which start 6 months and 13 days after the start of the accounting period, this proved advantageous for many businesses.

New associated companies rules

From 1 April 2023, the corporation tax rate is due to increase to 25% (subject to a lower limit of £50,000 and upper limit of £250,000 shared between group companies). Alongside the introduction of the higher tax rate, and to avoid companies structuring in such a way to avoid the pro-rating of the upper and lower limits mentioned above (which attract a lower rate of corporation tax), the associated companies’ rules have reverted back to the “pre-2015” rules.

Under these rules, a company is associated with another company if at any time within the preceding 12 months, one company has control of the other and/or both companies are controlled by the same person or group of persons.

Two companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.

The following tests determine control:

• Greater part of percentage share ownership
• Greater part of voting power
• Any rights
• Entitlement to assets on winding up

An individual’s associates include:

• Spouses (and civil partners), but not if divorced
• Blood relatives
• An individual beneficiary will be associated with a trustee or settlor of a trust

In deciding whether two or more companies are associated, control is determined by considering the following:

The direct rights of an individual. These are the rights of ownership personal to the individual.
The indirect rights of an individual. These are rights of the individual’s associates attributed to them according to whether the substantial commercial interdependence test applies.

Substantial commercial interdependence

Where the relationship between two companies is not one of substantial commercial interdependence it is not necessary to attribute the indirect rights of an individual’s associates in order to determine control.

Where there is no substantial commercial interdependence the only companies that will be treated as being associated are the companies under the direct control of the same individual or group of individuals.

These rules continue to disregard dormant and passive holding companies.

Large companies

Broadly speaking where a company has augmented profits in excess of £1.5 million divided by the number of associated companies, quarterly instalments of corporation tax will need to be considered. There is a year of grace (i.e. a company needs to breach the threshold for two consecutive years) unless augmented profits breach £10m in the first year, in which case it becomes large.

Quarterly instalment payments for a large company are due:

• 6 months and 13 days after the first day of the accounting period.
• 3 months after the first instalment date.
• 3 months after the second instalment date (14 days after the last day of accounting period).
• 3 months and 14 days after the last day of the accounting period.

Very large companies

Very large companies are required to pay corporation tax by instalments four months earlier than large companies. This means that the liability will be settled during the accounting period, rather than part-during and part-after the end of the accounting period as is the case for large companies.

A company is a very large company in an accounting period if its profits in the period exceed £20m. This figure is reduced proportionately for accounting periods which are less than 12 months. The £20m threshold is also reduced by the number of associated companies.

Ways to reduce the impact of rule changes

With the upcoming rules, there is time to potentially reduce the impact of these changes. Please get in touch with one of our corporation tax experts to discuss this in more detail.

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Elsewhere, the Mail argues that tax rules are outdated, noting that corporation tax accounts for just £43bn of the £672bn total UK take while HMRC estimates Britain’s tax gap stood at £34bn in 2013, £3.5bn of which was estimated to be lost corporation tax revenues. The Guardian’s Aditya Chakrabortty points to AstraZeneca’s corporation tax bill of zero for both 2013 and 2014, despite racking up global profits in those years of £2.9bn, and says liaison committees set up by George Osborne have meant some of the country’s biggest businesses have helped design their own tax regimes. Representatives from Astra and Vodafone were among those who advised the Government on how big businesses are taxed.

Sources: The Times, Daily Mail, The Guardian’
Plenty of Hugo Rifkind’s writing is light in tone. Only a few weeks ago, he wrote a TV review amusingly bemoaning Doctor Who’s non-sequiturs (or should that be non-prequiturs?). But he is equally adept at adopting a more serious, resolute approach (more so than some other journalists we’ve commented about) and his opinion piece for The Times is serious to the point of scathing. Examples: ‘These companies are not your friends … what they truly represent, in fact, are brazen, open wounds in the global social contract’ and ‘Ethical transgressions that would ravage the reputations of other sectors … are simply not their problem … the guilt is shunted to the consumer, with our complicity washing corporate hands clean’.

This consumer might be compared with one from much earlier in the digital age: Pac-Man (or, if you prefer, Ms Pac-Man), ingesting as long as there is stuff to ingest. And with a third of all Britons making daily use of a Facebook account (according to Rifkind), there is no shortage of Pac-Men. It might be a pleasing irony, then, if the PAC were to hold Facebook to account. This might bring some satisfaction to those who share Richard Murphy’s view, expressed in The Guardian, that ‘we have a tax system that lets it get away with paying very little tax and accounting standards that do not require that it properly explain why this is the case’. We’re further reminded of Hugo Rifkind’s aforementioned TV review, in which he complained about Peter Capaldi appearing in a room full of Daleks with a cuppa and the words: “The real question is: where did I get the cup of tea? Answer: I’m the Doctor. Just accept it.” If Facebook is questioned by the Public Accounts Committee, a perceived air of ‘Answer: we’re Facebook. Just accept it’ might just fail to work this time.

But what was Rifkind’s true motivation for writing the article? Elsewhere on social media, he gives the answer: ‘Wholly in order to spend the entire day arguing with accountants on Twitter.’ Evidently an irresistible pastime, he got what he bargained for. You can read much of the Twitter correspondence with Hugo here, including ACCA’s comment that for a proper analysis, ‘we’d need specifics which Facebook aren’t publishing to be sure.’ Hugo Rifkind’s piece, including his reference to ‘complex, layman-bothering tax arrangements’, will nonetheless have struck a chord with numerous readers who aren’t overly concerned with such specifics.

Our dilemma is: if we publish a link to this blog post on our Facebook page, are we biting the hand that feeds us? It’s a hand that, many people may now feel, includes both ‘a corporate American middle finger’ (Rifkind’s words) and a trademark thumb, pointing hypnotically upwards. The latter, we can be sure, is the digit to which Facebook wants us to pay the most attention.

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