The rate of Corporation Tax that a company suffers is affected by the number of companies “associated” with one another by common control.
Individual companies with profits in excess of £1.5 million pay tax at 24%. Those with profits up to £300,000 are taxed at 20%. Profits between those two thresholds are taxed at 25%. The key point is that, where companies are associated with one another, those thresholds are divided equally between them.
This may not matter too much if the associated companies all have broadly similar profit levels. However, if one or more has relatively low profits, but another has relatively high profits, significant amounts may be taxed at 24% or 25% where, had the trades all been within one company, the whole would have been charged at 20%.
Furthermore, many of the costs of running an individual company have a minimum effective level, regardless of size of operation (accountants’ fees for preparing annual accounts and Corporation Tax Returns being prime examples!).
There can be good commercial or management reasons for having separate companies. However, the more companies there are, the higher the potential Corporation Tax bill, and the greater the administration costs.
If you are already involved in a number of associated companies, and can justify it commercially, you may be able to reduce the number of active companies under common control so as to minimise tax and costs outlined above.
If you are thinking about setting up an “extra” company under common control, then think carefully. Maybe you could achieve what you want using separate trading divisions within one company, backed by a carefully constructed shareholders’ agreement?