Mini Budget 2022
In his mini budget on 23 September 2022, the then Chancellor, Kwasi Kwarteng announced the cancellation of the planned 6% corporation tax hike for 2023, from 19% to 25%. Company owners like you would have breathe a sigh of relief as we are already affected by the rising cost of living.
Corporation Tax U-turn
However, amid political turmoil, Jeremy Hunt replaced Kwasi Kwarteng as the new Chancellor on 14 October 2022. In an unprecedented corporation tax u-turn, the new Chancellor reversed the tax cuts to calm UK markets.
Are you feeling dizzy yet?
​Corporation tax from 1 April 2023 | Lower Limit | Marginal rate | Upper Limit |
Corporation tax profits | Up to £50,000 | Between £50,001 & £250,000 | Over £250,000 |
Corporation tax rate | 19% | 26.5% | 25% |
Do you think Corporation tax is as simple as this? ... Think again.
Number of companies
You might be thinking of creating other companies so that each company's corporation profits fall into the lower limit.
But HMRC has thought of this too!
Most people are unaware that in any accounting period, if a company has one or more associated companies, the upper and lower limits are divided by the total number of associated companies.
Total number of associated companies
= 1 + Number of associated companies
For example, if one company has 3 associated companies:
New Lower limit = £50,000 Divided by 4 = £12,500
New Upper limit = £250,000 Divided by 4 = £62,500
The above are proportionately reduced where the accounting period is shorter than 12 months.
Most small and medium sized companies are likely to be paying more corporation tax. So, don't get caught out.
What is an associated company?
A company is an associated company of another company if
1. One has control over the other, or
2. Both are under the control of the same person or persons.
A company may be an associated company irrespective of where it is in the world.
Note that dormant companies are exempt and non-trading holding companies may be exempt depending on their circumstances.
What is control?
The following tests determine control:
1. Percentage of shares owned
2. Voting power
3. Any rights
4. Entitlement to assets on winding up (loan creditors)
Getting your corporation tax wrong
If you calculate your corporation tax wrongly and file incorrect corporation tax return, your company will incur penalties with extra tax and interests to pay.
Plan ahead
If you already have other companies, review your tax position to determine whether you need to get rid of non-performing companies. If you are thinking of setting up another company, think of the impact on your potential corporation tax.
Leave your commments on how you have been/will be affected by the new corporation tax rules from 1 April 2023. Let us know if you need our assistance.