Keep your company’s tax rate low
Corporation tax rates have risen since 1 April 2023. In overview the rates are:
| Profit band | Corporation tax rate |
|---|---|
| 0 to £50,000 | 19% |
| £50,001 to £250,000 | 26.5% |
| Over £250,000 | 25% |
There are some exceptions. For example, if you own an investment company, all its profits may be taxable at 25%, irrespective of the level of profits.
These profit thresholds are reduced where there are ‘associated companies’ (broadly, companies under common control). However, companies owned by close family members (e.g. spouse, sibling or adult child) that have substantial commercial interdependence with your company may also be treated as an associated company. Dormant companies are always ignored, however. as are ‘passive holding companies’ (i.e. ones that do nothing other than receive dividends from their subsidiaries and pass them on to their shareholders).
For example, Fred owns 100% of Dino Ltd and 60% of Flintstone Ltd. As Fred controls both these companies, there are two associated companies under Fred’s control, and the above profit thresholds are divided by two for each company (e.g. they would only pay tax at 19% on profits up to £25,000).
Fred’s wife Wilma also owns two companies: Pebbles Ltd and Bamm Ltd. Although Fred and Wilma are connected as husband and wife, Wilma’s companies are not associated with Fred’s companies because they are run independently, have no economic or organisational ties and no other financial connections.
Where your company has commercial relationships with companies controlled by your relatives (e.g. inter-company loans or they operate from the same premises), we should discuss how this may affect the corporation tax payable by all of those companies.
Moving expenses between financial years can reduce the taxable profits below one of the relevant profit thresholds and reduce the total tax paid. For example, tax relief for pension contributions paid by the company can significantly reduce the company’s taxable profits. The timing of, for example, advertising expenditure or purchases of plant and machinery can also help to minimise your company’s tax.