5 Mins
Associated Companies
Rules to 31 March 2023:
Any company that is classed as large or very large is required to pay their corporation tax in instalments. Large companies are deemed to be large if their augmented profits exceed £1.5m and for very large companies the augmented profits would exceed £20m. To calculate the augmented profits of a company, we take the profits chargeable to corporation tax, add on any dividends received from UK companies but exclude any dividends received from group companies.
Currently, these thresholds are divided by the number of 51% related group companies.
The changes
From 1 April 2023, a group for QIPs purposes will no longer be the company and its 51% related group companies, but instead, it will be the company and its 51% associated companies. Both rules include overseas companies but do not count any dormant entities.
What are associated companies?
For a company to be defined as associated either of the following must apply:
- One of the companies must have control of the other, or
- Both are under the control of the same person.
Control means having at least 51% of the share capital, voting power and/or distribution rights.
This includes control by a shareholder and their relatives.
Relative means:
- Spouse or civil partner,
- brother or sister,
- ancestor or lineal descendant.
The term relative does not cover all family relationships and in particular nephews, nieces, uncles and aunts are excluded.
There are other situations where family members control 2 separate companies (e.g. husband controls 100% of one company, wife controls 100% of another company) and these can also be considered to be associated, however, this would need to be reviewed on a case-by-case basis.
What could this mean for your company?
With these changes taking effect in April 2023, there may be companies that were not previously in associated that may find themselves related for QIPs purposes and this would therefore accelerate the date the tax is due to HMRC. Should there be any questions please get in touch.
Research and development claims – recent changes
HMRC have recently published new changes regarding the process of filing an R&D claim. There are two main changes; the first is that from 1 August 2023, HMRC will now require that all companies submit an ‘additional information form’ before they submit their company’s corporation tax return (CT600). If companies do not do this, HMRC will automatically remove their claim for R&D tax relief.
The additional information form must be completed online and will require the following information listed below:
- Unique Taxpayer Reference (UTR), this must match the one shown in your Company Tax Return
- Employer PAYE reference number
- VAT registration number
- Business type, for example, your current Standard Industrial Classification (SIC) code.
- Contact details of the main senior internal R&D contact in the company who is responsible for the claim (for example, director), and details of any agent involved in the R&D claim
- A breakdown of qualifying expenditure
- Project details which include the number of projects being claimed for and a description of the R&D activities undertaken.
The second change is the requirement for certain companies to make a ‘claim notification form’ within six months after the end of the accounting period in which the R&D claim is made. If the claim notification form is not submitted within that time frame, then the company will not be entitled to R&D tax relief.
The new rule change will affect accounting periods starting on or after 1 April 2023, where the following conditions are met:
- The company is a first-time R&D claimant, or
- The company has not made an R&D claim in any of the previous 3 calendar years, or
- The company has claimed for the previous tax year but did not submit that claim until after the last date of the claim notification period (the claim notification period ends 6 months after the end of the period of account).
These changes will affect all companies that currently submit claims for R&D tax relief. Please get in touch if you would like to discuss further.
Employment related securities
Following the end of the 2022/23 tax year, it is time for employers to consider their Employment Related Securities (ERS) reporting requirements. Employee share scheme returns must be submitted by 6 July 2023 and penalties may apply for late submission.
This reporting requirement applies to any event whereby an individual acquires shares / securities or exercises options in the company which employs them (or even shares in another, unconnected company, if by reason of their employment). Connected parties (such as a spouse) are also caught by these rules. A company needs to report even if no tax charge arises as a result of the event, eg because an employee / director bought shares in the employing company and paid full market value for them. There are very few exemptions from this reporting requirement – it is very widely drawn, so you should take time to consider whether you might have anything to report.
Annual returns must report any relevant events that occurred during the 2022/23 tax year. The submission deadline for ERS returns for the 2022/23 tax year is 6 July 2023. Failure to submit on time can lead to penalties, even if there is no tax liability due to HMRC.
If filing a return for the first time, please ensure that you factor in the administrative time of setting up the scheme online with HMRC, to ensure that the 6 July filing deadline is met. Please do not hesitate to get in touch – we’re happy to help you work out whether you need to do anything in advance of 6 July.