This article explores the ‘associated companies rules’ which came into effect alongside the new corporation tax rules from 1 April 2023.
The associated companies rules are a set of rules that determine whether two or more companies are considered to be associated for corporation tax purposes. These rules are important because they can affect the amount of corporation tax that a company is liable to pay.
What are associated companies?
Two or more companies are associated if one company has control of the other company, or if both companies are under the control of the same person or persons. Control is defined as having more than 50% of the voting rights in a company, or the ability to appoint or remove more than half of the directors of a company.
How do the associated companies rules affect corporation tax?
The associated companies rules can affect corporation tax in a number of ways. For example, if two companies are associated, they may be treated as a single company for corporation tax purposes. This means that the profits of the two companies will be added together and taxed as if they were the profits of a single company.
The associated companies rules can also affect the amount of corporation tax that a company is entitled to claim in reliefs and allowances. For example, if a company is associated with another company, it may not be able to claim the same level of reliefs and allowances as it would if it were not associated.
What are the new corporation tax rules for the UK from 1 April 2023?
The UK government announced in the Spring Budget 2021 that it would increase the main rate of corporation tax from 19% to 25% from 1 April 2023. This increase was part of a wider package of measures to raise taxes in order to fund public services.
The associated companies rules will continue to apply under the new corporation tax rules. However, there are a number of changes to the rules that came into effect from 1 April 2023. These changes include:
- The definition of “control” will be extended to include situations where a person or persons have the power to influence the management of a company.
- The rules will be extended to cover partnerships and trusts.
- The rules will be simplified to make them easier to understand and apply.
What should businesses and shareholders do?
Businesses should review their current position to determine whether they are likely to be affected by the changes to the associated companies rules. If you are likely to be affected, you should take steps to mitigate the impact of the changes. This could include restructuring your business or making changes to your tax planning.
The associated companies rules are incredibly complex, so if you would like to know more about this subject please consult the Company Taxation Manual:
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual
Or you can of course contact the IN Team who will be happy to help!
For a brief overview of these rules, head on over to YouTube and watch Sarah‘s video on the same subject:
