Specialist Tax News

Associated Companies

Normally a limited company making taxable profits of up to £300,000 in its accounting year pays only the small companies’ rate of corporation tax which is 21%, as opposed to the standard rate of 28%. Not surprisingly there are rules to stop you controlling more than one company and getting several tranches of profit of £300,000 enjoying that lower rate, and if for example you controlled three companies the associated companies’ rules mean that each company only has £100,000 of profits taxed at 21%.

But in fact the rules are much wider, and if your spouse or civil partner controls another company it will also be associated with yours for this purpose. After many years of protests, there is a promise in the Budget that the Finance Bill 2011 will relax these nasty rules. It proposes that whilst the rights of a person and his nominees will always be taken into account, the rights of others (e.g. spouse) will only be relevant in limited circumstances. It suggests three categories of linkage:

    1. Financial inter-dependence
    2. Direct and economic links
    3. Organisational links

We doubt that this important relaxation is politically sensitive, and it should therefore see the light of day whatever happens at the forthcoming General Election. We will make sure that we take advantage as soon as we can, and get your company tax down wherever possible.

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