Contracting through a 2nd Ltd company once profit hits £50k?

[Contracting101]

Hi All,

Not great at all this / I'm used to be corrected, but as I've been told, currently Corp Tax was 19% flat rate on all Ltd Company profits. But from 1st Apr profits 19% only applies to up to £50k profits, then 26.5% above.

If available to me, any reason not to:
stop invoicing clients through first Ltd Company, and then start invoicing through a second Ltd Company, once it gets to the £50k threshold?

Thanks in advance to those more knowledgable!

[Guy Incognito]

Well the contract is with the company so you need a new contract for starters.

You also need to do two lots of accounts etc.

[Maslins]

If you control two companies, those tax thresholds are halved...so each company would be in the 26.5% effective/marginal rate from just £25k instead of £50k.

[hobnob]

If you control two companies, those tax thresholds are halved...so each company would be in the 26.5% effective/marginal rate from just £25k instead of £50k.

That's useful to know, thank you. Based on a quick Google search, I assume this is the concept of associated companies?
Associated companies and the impact of changes to corporation tax (wellersaccountants.co.uk)

[jamesbrown]

Hi All,

Not great at all this / I'm used to be corrected, but as I've been told, currently Corp Tax was 19% flat rate on all Ltd Company profits. But from 1st Apr profits 19% only applies to up to £50k profits, then 26.5% above.

If available to me, any reason not to:
stop invoicing clients through first Ltd Company, and then start invoicing through a second Ltd Company, once it gets to the £50k threshold?

Thanks in advance to those more knowledgable!

Doesn't work. They also brought back the old rules about aggregating profits from related companies for precisely this reason

[jamesbrown]

That's useful to know, thank you. Based on a quick Google search, I assume this is the concept of associated companies?
Associated companies and the impact of changes to corporation tax (wellersaccountants.co.uk)

Yes.

This will catch out quite a few contractors who mess around with BTL etc.

[northernladuk]

Doing anything with your business that is purely for tax reasons with zero business requirement is going to come under scrutiny and this one is about as blatent as it gets I am afraid. It's up there with shutting it every 2 years and claiming relief.

[Lance]

It's probably a breach of fiduciary responsibility as well.

Which is not often talked about as no one gets prosecuted for it theses days.
I haven't met many contractors who have even heard of it.