The small companies rate of Corporation Tax is 20% compared to main rate of 23% (2013/14). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.
For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:
- one of the companies has control of the other, or
- both of the companies are under the control of the same person or persons
But what some businesses forget is that if you have a subsidiary that has become dormant it stops being associated
an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.
Same applies for larger groups where the threshold for payment of corporation tax in advance by quarterly installments (£1.5m) is divided by number of associated companies and so can be triggered earlier by associated companies. Moving to installments can be punishing from a cash flow perspective as in the first year you pay both last year’s and some of the current year’s tax.