The small companies rate of Corporation Tax is 20% compared to main rate of 24% (2012/13). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.
For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:
- one of the companies has control of the other, or
- both of the companies are under the control of the same person or persons
But what some business forget is that if you have a subsidiary that has become dormant it stops being associated
an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.
Many Groups consist of trading and non trading businesses and often assets will get left behind in non trading businesses or businesses that only exist to cross charge their services, this is inefficient, to make a Group work efficiently assets need to centralised. But how can you do that?
Hive Ups and Hive Downs refer to the transfer of a business or assets within a group company.
What is a Hive Up?
A Hive Up is where a business or assets are transferred (or hived up) to the parent company.
What is a Hive Down?
A Hive Down is effectively a reorganisation of a company whereby a business or businesses are transferred (or hived down) to a subsidiary.
What could you Hive?
How do you Hive?
You need to sell the assets at their market value between the companies and to be a subsidiary a company must be 75% owned by its parent.
HMRC have rules to prevent loss buying ie buy a business with losses and use the losses to cut you tax bill, the rules are set out in CTM06300 http://www.hmrc.gov.uk/manuals/ctmanual/CTM06300.htm
It isn’t possible to get HMRC Clearance prior to a Hive Up or Hive Down but provided everything is fully disclosed and there are good commerical reasons for Hiving its likely HMRC will be supportive.
As always, if in doubt, seek advice.
Its often worth having a Tax Group even if you don’t have Group Accounts ie you have multiple businesses under common control but that are not directly owned subsidiaries. The reason for this is to offset profits and losses to reduce the total tax payment.
Generally this means completing a special extra return, the CT600C, unfortunately, this form is not available from HMRC to file on line.
There is a solution regulation 6 SI199/2975 (CTM97690) allows you to write to HMRC and explain which companies make up the group and ask for a simplified arrangement – meaning HMRC will automatically net off the returns with out the need for CT600C returns.
By doing this you can file the CT600′s on line for free with HMRC.