Hi

The corporation tax rate will increase to 25% from 1 April 2023, affecting companies with profits of £250,000 and over. Small companies with profits up to £50,000 will continue to pay corporation tax at 19%, with profits between these two figures being subject to a tapered rate.

To determine the correct rate to apply, a company must establish its ‘augmented’ profits. These are the company's taxable total profits of that period, plus certain non-taxable dividends (and some other kinds of distributions), received from companies that are not subsidiaries of the company.

The £50,000 and £250,000 limits will be divided by the number of associated companies. For accounting periods shorter than 12 months, these limits are also proportionately reduced.

Even if companies are only associated for part of the period, they are treated as being associated for the whole period for the purposes of these rules. However, an exception applies for dormant companies (ie, a company that carried on no trade or business at any time during the accounting period, or that part of the period when it is associated with the other company).

Broadly speaking, two companies are associated if one has control over the other, or both are under the control of the same person or persons. However, there are also specific rules for certain non-trading companies and association through fixed-rate preference shares, loan creditors and trustees. If any of these circumstances apply to your company you should make your accountants aware - if they are not already – who will advise on the correct rate to use.

Noel Guilford