Taking Account

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  • Taking Account

Small Company Tax

June 2006

From the 1 April 2006 the zero percent corporation tax rate for companies who have taxable profits of £10,000 or under, was abolished.

In some ways this was a welcome simplification of small company taxation. Effectively you could only claim the zero percent rate if the £10,000 of taxable profits were retained in the business. If you withdrew the profit as a dividend, then tax was payable at 19%.

The position now is:

  • Companies with profits up to £300,000 will pay tax at 19%
  • Between £300,000 and £1.5m at a marginal rate, and
  • Profits in excess of £1.5m at 30%.

These bands of taxable income will be reduced if a company is "Associated" with other companies - generally if companies are under common control.

For instance if Mr A owned more than 50% of the voting capital of Company X and Company Z, he would have effective control of both companies. Company X would therefore be associated with Company Z for corporation tax purposes. Each company would be allowed to make up to £150,000 taxable profit each year at 19%. (£300,000 divided by 2)

The rules which define this associated relationship are complicated. For instance in certain circumstances ownership of different companies, by husband and wife, can result in an association.

If you have any investment in the voting shares of any company, even if you consider them irrelevant, do discuss this issue with us when you next present your annual accounts.

Hilton Sharp & Clarke