Keep your company’s tax rate low

Corporation tax rates have risen since 1 April 2023

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).

Example-

 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. if your looking to accelerate tax relief we may be able to help 

Corporation tax also known as corporate tax , is a direct tax that is imposed on  income, profits, and capital gains of corporations or other legal entities. It is typically levied by national or regional governments on businesses and organizations operating within their jurisdiction. The tax is based on the net income or profits generated by a corporation during a specific accounting period.

 key points about corporation tax:

1. Taxable Entities: Corporation tax applies to various types of legal entities, including limited liability companies, corporations, partnerships, and other business entities. The specific rules for determining tax liability can vary depending on the legal structure of the business.
2. Taxable Income: Corporation tax is usually calculated as the difference between a corporation’s total revenue (including sales, services, and other income) and allowable business expenses (such as operating costs, salaries, interest payments, and depreciation).
3. Tax Rates: Different jurisdictions have varying corporation tax rates, which can be flat or progressive. Tax rates may differ depending on the nature of the business and the amount of profit earned.
4. Taxable Period: Most jurisdictions require corporations to file annual tax returns, reporting their financial activities over a specific accounting period. The taxable period is typically a fiscal year, which may or may not align with the calendar year.
5. Tax Credits and Deductions: Many tax systems offer deductions, allowances, and credits to corporations. Which can help reduce their taxable income and overall tax liability. These incentives might encourage certain behaviours, such as investment in research and development or environmentally friendly initiatives.
6. Tax Planning and Compliance: Corporations often engage in tax planning strategies to optimize their tax liability legally. Tax professionals assist corporations in understanding and adhering to tax regulations, ensuring accurate tax reporting and compliance.
7. Penalties and Enforcement: Failure to comply with corporation tax regulations can lead to penalties, fines, or legal consequences. It’s important for corporations to meet their tax obligations and file accurate and timely tax returns.

It’s important to note that tax laws and regulations can change over time and may vary significantly between countries. If you have specific questions about corporation tax , it’s recommended to consult with a tax professional