Tax on associated companies

[sidknows]

Can anyone shed some light on this ?

I run my IT consultancy business and make a handsome profit from it but if I was to run another company ie an associated company and make a loss on it , would I be able to offset the prifits from my It consultancy co

I'm aware of the tax rules surrounding the profits of both companies but am not sure on the associaed company ruling if one makes a profit and one a loss

Answers or directions to answers would be appreciated

[moorfield]

Not sure how to do that - I suppose company#2 could be a shareholder in company#1, thus receiving divis from company #1 (neatly sidestepping income shifting rules maybe), but company #2 would need to somehow post a loss > divis received otherwise another CT liability arises in company #2 (having already paid CT in company#1 obviously).

I'm looking at a similar idea, with company #2 being a "building" firm basically to fund some Plan B property development. Lots of research needed though.

[Fred Bloggs]

Ah, but........ I'm sure you'll declare and pay PAYE on every penny. It's only fair after all............

[xoggoth]

AFIK if you run two companies the profits can be considered together for CT purposes. Now there is no 0% band not sure it makes a lot of diifference (as you can carry forward a loss anyway to deduct from next year's profit) unless you were expecting to make a permanent loss on the 2nd.

[Platypus]

AFIK if you run two companies the profits can be considered together for CT purposes.

I seem to recall being advised the opposite.

Best check with your accountant!

[Friendly Accountant]

Whoa there!!!

AFIK if you run two companies the profits can be considered together for CT purposes. Now there is no 0% band not sure it makes a lot of diifference (as you can carry forward a loss anyway to deduct from next year's profit) unless you were expecting to make a permanent loss on the 2nd.

Actually, that is not the case! If you run two companies, each company must pay tax based on their individual profits, HOWEVER,

if the companies are parent - subsidiary, or both subsidiaries of the same parent, losses incurred in one can be shared with the other to offset any taxable income in the other. This is called group relief - subsidiary must be 75% owned by the parent to qualify.

Note that the small rate corporation tax band (20% for the year end 31 March 2008), which is available on profits up to £300k, must be shared by the companies. Therefore, if there are two in the group, each will be taxed at 20% on profits up to £150k and at 32.5% on profits over £150k. If there are three in the group, the low rate band will be £100k each and so on. Holding companies that do nothing other than hold shares (and I mean absolutely nothing!) are excluded from the group for these purposes.

Note also that dividends declared by a UK subsidiary to a UK holding company are not taxable, so this is not a way to move taxable income between the companies. You could consider management fees between the companies if you have an argument to support them.

[sidknows]

then the associated company route is not the correct one to offset losses and a group company would be more suitable to offset the losses of one company against the profits of another ?

Anyone know a good accountant ??????