There has been only one rate of corporation tax since April 2015 when the extra rate for profits over £300,000 was finally phased out.
This has meant that company owners have not needed to worry about forming multiple group companies for commercial reasons – previously this was difficult because the £300,000 lower rate tax limit was divided between companies under common ownership and so profits of less than that figure could be taxed at the higher rate. For instance, the case of a 3 company group each company would pay the higher rate on profits over £100k.
However, the problem has not disappeared completely. This is because companies with high profits (over £1.5m) have to pay their corporation tax in 4 instalments starting during the current year as opposed to the normal full payment 9 months after the year end and this needs to be avoided if possible owing to the obvious cash flow issue. The £1.5m limit has to be divided between group companies (in a similar manner to the old lower tax rate limit), so a group with (say) 5 companies has a limit of £300,000 profit before it enters the instalment regime.
So care is still required when considering the use of multiple companies.
If you would like to discuss your position further, please contact one of our team today.