For many companies, the historically low rates of Corporation Tax that have applied for the past 8 years come to an end on 1 April 2023. From that date the main rate is 25%. Trading and property investment companies retain the 19% rate if taxable profits (before payment of dividends) are below a ‘small profits limit’ and will pay a gradually increasing blended rate that reaches 25% only once profits reach an ‘upper limit’.
If you have no ‘associated companies’ your small profits limit is £50,000 and your upper limit £250,000. But if there are companies in the same group or under common control, the limits are reduced appropriately. Depending on what the aggregate profits of all the associated companies are and how they are split, this may mean that the total tax bill may be a bit more or a bit less than if there had been just a single company.
It’s worth doing a quick bit of modelling to see what the effect is likely to be and whether it may be worth looking at the ownership structure, which might involve replacing subsidiaries with divisionalisation or exploring the use of LLPs. Since any changes will need to be completed before 1 April if they are to have maximum effect, now is a good time to start considering them.
If you do expect to be hit by the higher Corporation Tax rates, consider whether it may be possible to defer discretionary expenditure into a later accounting period or (though usually more problematic) accelerating profits into the current one.
Our business tax specialists would be pleased to help you explore your options and their tax implications. To find out more, please get in touch with your usual BKL contact or use our enquiry form.