New corporation tax rates and associated companies

With the changes in corporation tax that came in in April 2023 there are now two rates of corporation tax. 19% if your profits are under £50k and 25% if they are over £250k. There is marginal relief in between those numbers to slowly increase the overall tax to the top 25%. 

For a lot businesses with small profits this will be fine and they will stay at 19% corporation tax. 

However!!!!! For associated companies the tax bands are divided by the number of companies. So if there are two associated companies the 19% rate only applies to the first £25k of profit in each business. 

A company is an ‘associated company for corporation tax’ of another company if one of the two has control of the other, or both are under the control of the same person or persons. If you have set up two (or more) companies, or are a majority shareholder in other companies you may find that the higher tax rates affect you much sooner than you had expected. 

If you have more than one company it is worth considering if they are all really necessary and maybe simplify your business structure. Likewise, if you are considering opening another limited company you will need to seriously consider the tax impact it may have.