From 1 April 2023, corporation tax (CT) rates are increasing from the present 19% to 25%.

There will be a small company’s rate of 19% for companies with taxable profits under £50,000, and a marginal rate will apply (between 19% and 25%) on profits above £50,000 and up to £250,000.

We are sending you this alert as there is a possibility that your present company holdings may disadvantage you when these tax changes are triggered 1 April 2023.

All is not as it seems

An initial read of this change would seem to indicate that most small companies with profits under £50,000 will see no change in the rate of CT they are charged, but HMRC are out to ensure that companies do not hive off profits to multiple companies to avoid this increase.

They would do this by having associated companies – companies under common control – considered when calculating tax due.

For example

The limits of £50,000 and £250,000 are reduced if you already have two or more companies that are under common control. If you have two companies, the limits are reduced by half (divided by 2) to £25,000 and £125,000. If you own five companies under common control, the limits are reduced to £10,000 and £50,000.

Accordingly, you may want to review your present company structures before the tax changes 1 April 2023.

For example, if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.

Let’s consider your options

If there is a possibility that you may be disadvantaged by your present company structures it would make sense to determine the amount of ongoing CT liabilities and how we could help you consolidate trades into fewer companies to minimise any disadvantages.

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