When you have several business interests, it is important to be aware of the tax implications when setting them up. The structures that you put in place can affect the tax liabilities on the business profits.
When two companies are under common ownership (including companies owned by spouses and civil partners), the small company limits for corporation tax are shared between them. This makes it very much more likely, that a successful business will pay the marginal rate of corporation tax (currently 29.75%) on profits. For example, although the limits are £300,000 for the small company rate, if there were three associated companies, each would only benefit from £100,000 of profits at the small company rate. Two of the companies might only make small profits of around £10,000 per annum, but the third successful company making £250,000 would suffer the higher rate of tax on £150,000 of those profits, in spite of the fact that between the three companies the £300,000 limit has not been exceeded.
Where related companies are sharing the limits in this way there is still no possibility of offsetting losses between them, so this could be viewed as the ‘worst case scenario’. Forming a small group of companies would at least allow the losses in one to be offset against profits in the others.
It is important that you consider the structure of your business interests on a regular basis to ensure that you have the best outcomes for your business and you.
Tags: tax planning, UK Corporation Tax
