As at 1 April 2023 the corporation tax main rate will increase to 25% applying to taxable profits over £250,000, with a small profits rate of 19% for companies with taxable profits of £50,000 or less. Companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief.
As part of these changes, the related 51% group company test will be repealed and replaced by associated company rules. These will be similar to the rules before the 51% group company test was introduced. They will determine whether a company is large (or very large) for quarterly instalment payment purposes.
Broadly, a company is associated with another company if at any other time within the preceding 12 months:
- one company has control of the other
- both companies are under the control of the same person or group of persons
The limits apply to companies worldwide and regardless of where they are resident for tax purposes.
There are a number of exclusions however:
- Dormant companies are excluded from the associated company rules
- A company will not be treated as an associate of another if it is a passive holding company (broadly where a company only receives dividends from its subsidiaries and pays these to its shareholders, and the company receives no other income or expenses
- Where businesses are owned by associates of that person (or persons), if the relationship between one or more companies is not one of substantial commercial interdependence, they will not be deemed as associated.”
Substantial commercial interdependence
Some of the factors to consider when determining whether companies are interdependent are as follows, though the below is not an exhaustive list:
- the companies seek to realise the same economic objective or
- the activities of one benefit the other or
- the companies have common customers
Tax planning
Consideration should be given well in advance as to the profit level of all companies under common ownership to establish whether they will fall within the instalment payment regime (where taxable profits exceed £1.5m divided by the number of associated companies (or £20m divided by the number of associated companies for very large companies). This will have implications on cash flow as the due date for corporation tax (outside of quarterly instalment payments) is 9 months after the end of the accounting period, whereas quarterly instalment payments will be due in the 7th, 10th 13th and 16th months of the accounting period to which they relate. This would mean the first tax payment in respect of the next accounting period will be due, before the tax has been paid in respect of the previous year.
For example, for the accounting period ended 31 December 2024 the tax would become due:
- 14 July 2024
- 14 October 2024
- 14 January 2025
- 14 April 2025
and the tax due date in respect of the accounting period ended 31 December 2023 would be 1 October 2024.
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