Holding company accounts and tax: dividends from subsidiaries, group size and the tax rate

Dividends from subsidiaries

Under the exemption for small companies, a dividend a small company receives is exempt if the company paying it is resident only in the UK or in a qualifying territory, it isn’t a kind of distribution the exemption leaves out, no other country gives the payer a tax deduction for it, and it isn’t part of a tax advantage scheme². For most small groups, where a UK trading subsidiary pays its profits up to its UK holding company, that means no Corporation Tax on the dividend².

The dividends still go in the accounts and on the CT600. A company that received a dividend in the year had a significant accounting transaction, so it isn’t dormant for Companies House, even if it did nothing else¹¹.

The tax rate: associated companies and augmented profits

Two rules decide the rate on the holding company’s taxable profits, such as interest or the management charges it makes to its subsidiaries.

First, the £50,000 and £250,000 limits are reduced by the number of associated companies¹. A holding company with two subsidiaries it controls has two associated companies, so the limits are shared three ways: 19% on profits up to about £16,667 and 25% above about £83,333.

Second, the rate is decided by “augmented profits”: taxable profits plus certain exempt dividends. Dividends from a 51% subsidiary, or from a company that is a 51% subsidiary of the same parent, are left out of that sum³. So a dividend from a wholly owned subsidiary doesn’t push the rate up, but an exempt dividend from a company it owns 20% of does, even though it isn’t taxed³.

When it pays 25% on everything

A close company only keeps the small profits rate if it exists wholly or mainly for permitted purposes^5,4. Holding shares in, or making loans to, companies it controls that trade or let property commercially is one of them, and so is co-ordinating the administration of those companies⁴. A holding company over a trading group keeps the normal rates.

A company that mainly holds other investments, such as cash, listed shares or minority stakes, is a close investment-holding company instead, and every pound of its profit is taxed at the 25% main rate^5,4.

Group accounts and audit

A parent company must prepare group accounts unless it is exempt, and a company subject to the small companies regime is exempt, as long as the group doesn’t contain an undertaking of the kinds the law excludes, such as a listed one⁷. Most small holding companies therefore file only their own accounts, showing their investment in the subsidiaries.

The size test looks at the group, not just the company:

• Small: a company is small if it meets two of turnover of £15 million or less, a balance sheet of £7.5 million or less, and 50 employees or fewer¹². A parent only gets the small companies audit exemption if its group qualifies as a small group and isn’t an ineligible group¹⁰.
• Micro: the micro-entity limits are £1 million, £500,000 and 10 employees^12,8. A parent only qualifies if the group it heads is small⁸, and the micro-entity rules don’t apply to a parent that prepares group accounts, or to a company whose accounts are included in consolidated group accounts⁹.

See micro-entity accounts and small company accounts for what each version contains.

Selling a subsidiary

When a company sells shares in another company, the gain is not taxed if the substantial shareholding exemption applies. The main conditions are that it held at least 10% of the ordinary shares for a continuous 12 months within the six years before the sale, and that the company sold was a trading company, or the holding company of a trading group, throughout⁶. Check the conditions before selling: they also look at the period up to the sale⁶.

Deadlines

A holding company has the same deadlines as any other company: accounts 9 months after the year end, Corporation Tax 9 months and a day after it, and the CT600 12 months after it. For a year ending 31 March 2026 that is accounts by 31 December 2026, tax by 1 January 2027 and the return by 31 March 2027. Each subsidiary files its own accounts and return. Check your dates with the deadline checker.

Filing with Fileyear

Fileyear spots a holding company from its Companies House record and prepares its own accounts and CT600: it asks about the group (who owns what, and the whole group’s figures, to check the group is small), the dividends received from 51% subsidiaries, and whether the company is a close investment-holding company. Fileyear doesn’t prepare group accounts. Start with accounts and tax return.