Companies associated with each other are currently required to split the small companies’ corporation tax band of £300,000 when calculating the rate of corporation tax that should apply to their taxable profits.   Association is currently based on an attribution of rights, including voting rights and rights to assets on winding up, and may, in some circumstances, result in an association by accident, unfairly penalising entrepreneurial ownership.   HM Revenue and Customs and HM Treasury have issued a consultation document seeking to reform the associated company rules by offering a more targeted test to establish those companies that form an economic whole and thus whose profit should be considered collectively in establishing the rate of corporation tax rather than being associated via an attribution of rights.  

Responses have been requested by 22 January 2010 and may result in many companies finding their corporation tax rates being reduced. Full details of the consultation document can be found at: www.lexisurl.com/simp.

Posted on 18 Nov 2009