What are the new corporation tax rates for small businesses?

Starting April 1, 2023, small businesses in the UK will pay corporation tax at the following rates:

• Small profits rate: 19% for profits up to £50,000

• Main rate: 25% for profits above £250,000

• Marginal relief: A reduced rate of 25% less marginal relief for profits between £50,000 and £250,000

What are associated companies, and how do they affect corporation tax rates?

Two companies are associated if one company controls the other, or if the same person(s) control both companies.

The associated company rules prevent small businesses from splitting their business activities across multiple companies to benefit from the lower small profits rate. If a small business has even one associated company, the profit thresholds for the small profits rate and marginal relief are reduced proportionately.

How do I know if my business has associated companies?

Your business has associated companies if:

• You have a controlling interest in another company (more than 50% of the shares or voting rights)

• Another company has a controlling interest in your business

• You and another person(s) have a controlling interest in both your business and another company

What impact do associated companies have on my corporation tax bill?

The following table shows the impact of associated companies on the profit thresholds for the small profits rate and marginal relief:

How can I avoid the impact of the associated company rules?

There are a few things you can do to avoid the impact of the associated company rules, such as:

• Restructure your business to reduce the number of associated companies you have

• Sell or merge associated companies

• Make sure that your business activities are not fragmented across multiple companies

If you are unsure whether your business is affected by the associated company rules, or if you need help restructuring your business to avoid the impact of the rules, you should speak to an accountant or tax advisor.

Additional tips for small business owners:

• It is important to keep detailed records of your business activities, including any transactions with associated companies. This will help you to calculate your corporation tax liability accurately and avoid any penalties from HM Revenue and Customs (HMRC).

• You should also review your corporation tax liability regularly, especially if your business circumstances change. This will help you to identify any potential tax liabilities early on and take steps to minimize them.

• If you have any questions about the associated company rules, or if you are unsure how they apply to your business, you should speak to an accountant or tax advisor.