What will the UK subsidiary pay in corporation tax?
The headline rates are 19% and 25%. The number that decides which applies is how many companies are under common control, anywhere in the world.
Assume 25%
The 19% rate exists for small independent companies. A subsidiary of a group with several companies almost never gets it, because the thresholds are divided across every company under common control worldwide. Model the UK operation at 25% and treat anything better as good news.
| Effective rate | 0% |
| Basis | — |
| 19% band ends at | £0 |
| 25% rate starts at | £0 |
The associated companies rule
UK corporation tax is 25% on profits above £250,000 and 19% on profits up to £50,000, with marginal relief in between. Those two thresholds are divided by the number of associated companies: companies anywhere in the world under common control, including the parent, the parent's other subsidiaries and companies owned by the same individuals.
A group with ten companies has a small-profits limit of £5,000 and an upper limit of £25,000. In practice its UK subsidiary pays 25% on effectively everything. This is why a first-year forecast built on the 19% rate is usually wrong by a wide margin, and why the answer to "what rate will we pay" is almost always 25%.
What counts as an associated company
Broadly, another company is associated if one controls the other, or if both are under the control of the same person or persons. It counts companies in every country, not just UK ones. Dormant companies are ignored. The count is taken at the end of the accounting period, so a group that acquires companies during the year can find its thresholds shrink retrospectively.
Quarterly instalments
A company with profits above £1.5 million normally pays its corporation tax in four instalments during and shortly after the year, rather than nine months afterwards. That £1.5 million threshold is divided across the group in the same way. A subsidiary with £400,000 of profit and three sister companies is an instalment payer, and two of its four payments fall due before its year has even ended. The cashflow effect is worth a year's notice rather than a fortnight's.
What reduces the bill
- Full expensing gives a 100% deduction in the year for most new plant and machinery, with no cap.
- The annual investment allowance gives full relief on up to £1 million of qualifying expenditure, and a group gets one allowance between all its companies.
- Research and development relief gives a taxable credit worth 20% of qualifying spend to the company doing the work. Where the work is done matters, so a UK subsidiary that subcontracts its development back to the parent will usually not qualify.
- Documented intercompany charges from the parent are deductible if they are at arm's length and written down. Undocumented ones are the first thing HMRC disallows.
- Group relief lets a loss-making UK company surrender losses to a profitable one in the same 75% group. It does not reach the parent abroad.
Common questions
How do we count our associated companies?
Every company under common control anywhere in the world, including the parent and its other subsidiaries, excluding dormant ones, counted at the end of the accounting period. The count includes holding companies and overseas entities.
Is the UK 25% rate high?
It is mid-range internationally. The variable is not the rate but whether the reduced rate applies at all.
When is the tax paid?
Nine months and one day after the end of the accounting period, unless profits are large enough for quarterly instalments, in which case two of the four fall due before the year end.
Do we file a group return?
No. Each UK company files its own return and pays its own tax. There is no consolidated filing, though losses can be surrendered between UK group companies.
The other calculators
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