Corporation tax is about to get personal

By Emma Fisher

The definition of associated companies is changing and this is set to impact the rate of tax applied to calculating a company’s taxable profits.

The change will come into force from April 1 2023 and will mean that many owner-managed businesses will now have associated companies where previously they had none.

Previously, associated companies only really included those companies which were controlled (51%) directly or directly within a corporate group situation.

The definition now extends beyond looking at those companies within a group situation. It will need to look at its controlling shareholders (individually or collectively) and assess which other companies they control (directly or indirectly).

For many business owners, this change will have gone under the radar with the change in corporation tax to between 19% and 25% (depending on the level of taxable profits) which has been the main tax change highlighted for April.

But the new definition of associated companies could have significant impact – not only will it affect the rate of tax applied to calculating the company’s taxable profits, but it can also mean that some companies fall under the quarterly instalment payments (QIPs) regime.

It is vital that companies start looking at this now to be able to properly plan and evaluate their position.

However, there is another factor to consider. Corporation tax is about to get personal.

Companies will not only need to review the interests of its controlling shareholders, they will also need to consider the interests of their ‘associates’.

This includes the controlling shareholder’s partner, spouse, brother, sister, son, daughter, mother, father and can also include Trustees of trusts.

From there, the company will need to assess the degree of interaction and dependency that exists between these companies – and any review must include trading, financial, managerial, operational and shared resources arrangements.

Not only is the associated companies’ definition getting personal, the rules surrounding applying these, have also become very complex and now require a lot more work to be carried out for these numbers to be calculated.

A lot of this information will not be held by your accountant and therefore you will need to work together to get these numbers right.

With HMRC’s latest interest rate rise bringing the late payments charge to 6.5 % per annum on corporation tax (or 5% if under the QIPS regime), any underpaid tax arising as a result of a miscalculation could end up being very costly.

Taking the time now to consider and evaluate the impact these changes will have on corporate structures will allow for companies to consider making changes to minimise the overall impact on their tax position.

At Burgis & Bullock, we are here as always to help in establishing the facts, looking at the options available to help navigate affected companies through this period of transition.

Get in touch with our team today for expert advice and guidance.

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