Kate Gott Corporate Tax Director

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Kate Gott

Corporate Tax Director

Kate joined Wilson Wright in 2016, having predominantly worked within the UK’s top 10 accounting firms over the previous decade.

She is a chartered tax adviser specialising in advising businesses and their owners. She works for a wide range of clients, including companies, LLPs and partnerships.

Her areas of expertise include research and development tax credit work, both international and domestic tax efficient structuring, transfer pricing, and due diligence. Kate also has significant experience of working with private equity structures and professional service firms.

She works closely with her clients to ensure they keep up to date with their tax compliance obligations and are aware of tax planning opportunities and changes to the tax legislation that may affect them.

13 Jun 2022

The UK has operated a flat rate of corporation tax (19%) since 1 April 2015. Alongside the introduction of this flat rate, a simplified definition of an associated company for corporation tax purposes was introduced capturing only parent entities and their 51% subsidiaries.

As the number of associated companies lowers the thresholds that determine whether corporation tax is due 9 months and 1 day after the end of an accounting period, or by way of quarterly instalments which start 6 months and 13 days after the start of the accounting period, this  proved advantageous for many businesses.

New associated companies rules

From 1 April 2023, the corporation tax rate is due to increase to 25% (subject to a lower limit of £50,000 and upper limit of £250,000 shared between group companies). Alongside the introduction of the higher tax rate, and to avoid companies structuring in such a way to avoid the pro-rating of the upper and lower limits mentioned above (which attract a lower rate of corporation tax), the associated companies’ rules have reverted back to the “pre-2015” rules.

Under these rules, a company is associated with another company if at any time within the preceding 12 months, one company has control of the other and/or both companies are controlled by the same person or group of persons.

Two companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.

The following tests determine control:

• Greater part of percentage share ownership
• Greater part of voting power
• Any rights
• Entitlement to assets on winding up

An individual’s associates include:

• Spouses (and civil partners), but not if divorced
• Blood relatives
• An individual beneficiary will be associated with a trustee or settlor of a trust

In deciding whether two or more companies are associated, control is determined by considering the following:

• The direct rights of an individual. These are the rights of ownership personal to the individual.
• The indirect rights of an individual. These are rights of the individual’s associates attributed to them according to whether the substantial commercial interdependence test applies.

Substantial commercial interdependence

Where the relationship between two companies is not one of substantial commercial interdependence it is not necessary to attribute the indirect rights of an individual’s associates in order to determine control.

Where there is no substantial commercial interdependence the only companies that will be treated as being associated are the companies under the direct control of the same individual or group of individuals.

These rules continue to disregard dormant and passive holding companies.

Large companies

Broadly speaking where a company has augmented profits in excess of £1.5 million divided by the number of associated companies, quarterly instalments of corporation tax will need to be considered. There is a year of grace (i.e. a company needs to breach the threshold for two consecutive years) unless augmented profits breach £10m in the first year, in which case it becomes large.

Quarterly instalment payments for a large company are due:

• 6 months and 13 days after the first day of the accounting period.
• 3 months after the first instalment date.
• 3 months after the second instalment date (14 days after the last day of accounting period).
• 3 months and 14 days after the last day of the accounting period.

Very large companies

Very large companies are required to pay corporation tax by instalments four months earlier than large companies. This means that the liability will be settled during the accounting period, rather than part-during and part-after the end of the accounting period as is the case for large companies.

A company is a very large company in an accounting period if its profits in the period exceed £20m. This figure is reduced proportionately for accounting periods which are less than 12 months. The £20m threshold is also reduced by the number of associated companies.

Ways to reduce the impact of rule changes

With the upcoming rules, there is time to potentially reduce the impact of these changes. Please get in touch with one of our corporation tax experts to discuss this in more detail.