As of 1 April 2023, the rate of corporation tax that a company pays, and when, changed to be dependent on the level of its profits as well as the number of its associated companies.
Changes In Corporation Tax Rates
As of April 1, 2023, companies with more than £250,000 in profit had to pay 25% in taxes. Companies with less than £50,000 in profit will continue to only need to pay 19%. Companies with money between £50,000 and £250,000 can get some help paying the 25% tax.
For groups of companies, the profits they make are divided by how many companies are in the group. This helps decide how much tax they need to pay.
Groups and Associated Businesses
The rules about related companies have changed. The changes which came into place on April 1, 2023, mean accounting periods are now split into two parts. The first part has to pay 19%. How much tax the second part pays depends on how many companies are connected at that time.
Two companies are related to each other if one company has control of the other, or if the same person or group of people is in charge of both companies. This could happen for a certain amount of time.
Previously, a company had to be owned by another company or both companies had to be owned by the same one in order for them to count. Now, if someone has control of either of the companies, they will also count. This means that more companies can be taken into account now. For example, someone who owns all of the shares in four companies will be treated as if those companies are connected starting in April 2023. That means each company has to pay 25% tax when it makes more than £62,500 (£250,000/4).
Some companies do not need to be treated as connected. These include dormant companies, companies that only get and give out money (passive holding) and companies owned by people who are related, as long as those companies don’t depend on each other for business.
How to find out
To find out who controls a company, you need to look at the shares held by that person and their family. This includes their spouse, children, parents, and siblings.
If one spouse owns a company and the other owns another company, they are usually related unless it can be proven that the two companies do not depend on each other. For example, if they help each other in business, then they could be related.
Examples of this are financial interdependence, which means if one company lends money to the other, or if both companies are invested in the same business. Economic interdependence means that both companies share customers, or when one company helps the other. Organisational interdependence means having the same people working for them, using the same management team, or sharing buildings and equipment.
Paying Instalments Quarterly
You need to determine what tax rate you should pay, and if your business is classed as large or ‘very large’. This will help you decide how much money you have to pay the government each quarter.
A company is large if it makes at least £1.5 million in taxable profits, divided by the number of other companies it is connected to. The first year they are classed as large, they usually get a grace period unless their taxable profits for that year are more than £10 million divided by the number of associated companies again.
Accelerated instalment payments are for companies which are deemed to be ‘very large’ and make more than £20 million in profits and have lots of associated companies. There is no special time period for companies to get used to this payment system.
Before April 2023, the companies we used in our example previously each had different amounts of money they needed to make to be considered large or ‘very large’. The amounts were £1.5 million and £20 million respectively. As of April 2023, if a company makes more than £375,000 it is considered large and if it makes more than £5 million it is ‘very large’.
As of April 1st 2023, more companies have to pay money in instalments. This means they will need to pay a little bit at a time instead of all at once. Companies that have part of their accounting period before and after April 1st 2023 will still use the older rules.
Companies which have to pay their taxes in instalments for the first time on April 1st, 2023 (if the year ends on March 31st) must make their first payment by October 14th, 2023. That is six months and fourteen days from when they started. Companies that have a large tax bill may need to make their first payment by June 14th, 2023.
What To Do Next
It is important to know how many companies are connected to you as soon as possible. This helps you determine how much money you will have to pay in taxes. It may make sense to combine some or exclude businesses with low volumes of sales in order to pay the most reasonable amount for your company.
As of April 1, 2023, companies that make more than £250,000 need to pay 25% in taxes. Companies that make less than £50,000 will need to pay 19%. Companies that make between £50,000 and £250,000 get some tax relief but still have to pay 25%. For groups of companies, the profit is split and then each company pays the rate that applies.
Here To Help with advice about the Changes in Corporation Tax
If any of these changes in corporation tax affect your business, we are happy to talk you through what you need to do to stay on top of your tax. Feel free to get in touch,
You can call us on 01257 241 111
Or email us at info@studholme-bell.com
