Your company made profits last year of £150,000 and the corporation tax bill at the small companies rate of 19% amounted to £28,500.But if your company is part of a group of four companies the bill would have been almost £39,000. The impact of the group companies is to reduce, pro rata, the profit level at which the small companies rate ceases to apply.
More specifically, the pro rata exercise applies whenever there are ‘associated companies’. The detailed rules are complex but the bottom line is that companies under ‘common control’ are associated.
Common control includes the scenario where you control one company and your spouse controls another. Think about the impact on your trading company’s tax bill if your spouse starts a small property investment company. Where other relatives are involved, say you control one company and your brother controls another, the rules are different. In this scenario the companies will only be associated if there is substantial commercial interdependence between them.
The situation can become even more complicated when shares are owned by family trusts as well as by individuals or where loans have been made between companies.