At present, the related 51% group company test defines when large and very large companies will pay their corporation tax bill. But how does this test work?
How does the related 51% group company test currently work?
Most companies pay corporation tax in arrears. This usually means making one annual payment, nine months and a day after the account period ends. For ‘large companies’ and ‘very large companies’, where annual profits exceed £1.5 million and £20 million respectively, the single payment is replaced by instalments.
Currently, the £1.5 million and £20 million thresholds are divided by the number of related 51% group companies.
Company A is a related 51% group company of company B if:
- A is a 51% subsidiary of B
- B is a 51% subsidiary of A
- A and B are 51% subsidiaries of the same company
A is a 51% subsidiary of B if more than 50% of its ordinary share capital is beneficially owned (directly or indirectly) by B.
NOTE: the related 51% group company test will be replaced in April 2023, with the new associated company rules being introduced from this date.
What do the associate company rules mean for my organisation?
If your company is classified as a ‘large company’, its corporation tax liability has to be settled in four instalments as follows:
- 6 months and 13 days after the first day of the accounting period
- 3 months after the first instalment
- 3 months after the second instalment (14 days after the last day of the accounting period)
- 3 months and 14 days after the last day of the accounting period
For ‘very large companies’, the instalments are due:
- 2 months and 13 days after the first day of the accounting period
- 3 months after the first instalment
- 3 months after the second instalment
- 3 months after the third instalment
Talk to us about your corporation tax payment obligations
It’s not always clear how many companies comprise the related 51% group (or the set of ‘associated companies’ from April 2023). We can help you analyse where the 51% rule applies, or calculate the number of associated companies when the new rules come in from April.
Where instalments are paid, that requires an estimate to be made of the tax liability for the year. This is important, as some of the payments are made in advance.
If you operate with more than one company, talk to our High Wycombe office about checking if the large or very large company rules apply to your group.
