Spring Statement 2022: Corporation Tax

John McAuslin

John McAuslin

Tax Partner, Head of Corporate Tax

If there is one thing that UK companies have been seeking in recent years it is a period in which to consolidate their understanding of the tax and regulatory environment they operate in.

The Spring Statement was anticipated to be light on changes to Corporation Tax (CT) and in this regard the Chancellor delivered. Other than the consultations on how to stimulate future growth and investment in the UK economy through Capital Investment and Innovation (more on these here) it is clear the Chancellor’s focus is not Corporation Tax, at present. From a Corporation Tax perspective we therefore look ahead to the introduction of the 25% CT rate from 1 April 2023, and encourage clients to strategically plan their expenditure to ensure the benefits of the Super Deduction and R&D expenditure (which are currently available), are maximised. 

One important consideration for small business owners from 1 April 2023 is the return of “associated companies”, being the determinate as to the rate of Corporation Tax that will be payable. Small companies will continue to pay CT at a rate of 19% post 1 April 2023, provided their profits are less than £50,000. The 25% CT rate only applies to taxable profits in excess of £250,000, with a marginal rate of effectively 26.5% applying to profits between these thresholds. These limits are to be adjusted for the number of “associated companies”. The associated companies rules were abolished in 2015, but are reacted in line with how they previously applied. A company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months: 

  • One company has control of the other. 
  • Both companies are under the control of the same person or group of persons. 

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

  • 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. 

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. 

The return of these rules may therefore produce some unexpected results from a CT perspective. Therefore, while this Spring Statement may have been light on CT detail, there is still plenty for many small business owners to plan ahead for.   

For more information or to discuss any of these matters further, please don't hesitate to get in touch with me or another member of our Corporation Tax team.

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