It is common practice in the licensed trade and hospitality sector to operate multiple venues through separate limited companies.
The structure offers valuable protection, if one business fails, the others are generally shielded from its liabilities. However, since April 2023, owning more than one company can also result in a significantly higher Corporation Tax bill.
Under HMRC’s associated companies rules, companies under common control must share the Corporation Tax profit thresholds.
Greater attention
Normally, profits up to £50,000 are taxed at the small profits rate of 19%, while profits above £250,000 are taxed at the main rate of 25%, any amount between these figures is considered marginal and the rate can vary.
Where companies are “associated,” those thresholds are divided between them. Two associated companies reduce the limits to £25,000 and £125,000 each, meaning businesses can move into the higher 25% tax band much sooner than a single-company owner would.
The issue is now attracting greater HMRC attention following reforms introduced under the Economic Crime and Corporate Transparency Act 2023.
Companies House has introduced mandatory identity verification for directors, LLP members, and Persons with Significant Control (PSCs), giving HMRC clearer visibility over individuals linked to multiple companies.
HMRC has increasingly contacted directors where it believes Corporation Tax may have been calculated incorrectly due to associated company rules being overlooked.
Professional advice
Business owners who control more than one limited company are being encouraged to review their Corporation Tax position as soon as possible.
While legitimate tax planning opportunities may still exist, they must be structured correctly and supported by professional advice.
Failing to review your position early could result in unexpected tax liabilities, penalties, or reduced planning opportunities later.
Speak to your accountant if you think these rules may affect you