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Corporation Tax Rates & Associates

Corporation tax is payable by UK Companies on their profits.  The rate of tax starts from 20% and rises to 24% (although the marginal rates can exceed this).

The rate of tax paid by a business depends on the level of profits.  The lowest rate of 20% is payable on profits up to £300,000.

However the limit is reduced where there are one or more associated companies.  Generally, an associated company is one which is either a subsidiary (with ownership of more than 50%), or another company where the directors own greater than 50% of the shares and therefore voting power.

For example Mr A owns 75% of X Ltd and 100% of Y Limited.  The Companies are therefore associated.

Where companies are associated, the profit levels for determining the rate of corporation tax are divided by the number of associates.  Therefore, in the above example as there are two associates, the higher rates of Corporation Tax are payable when profits exceed £150,000 (£300,000 divided by 2).

The planning point here is that when setting up a new business idea or product line, it is important to consider whether this actually needs to operate in a separate company, or instead could be operated within an existing entity.

The tax savings can be significant.  Please contact our tax department for more information on 020 8429 9245 or send an e-mail to info@wisteria.co.uk.