The small companies’ rate rules apply to companies whose annual profits
do not exceed £300,000. If the profits are above this amount but do not
exceed £1.5m, marginal relief is due. The limits are reduced proportionately
for companies’ ‘associated’ with other companies.
‘Associated’ means being under common control; however ‘control’ is very
broadly defined. In particular, a person’s business partner’s rights and
powers are attached to the person.
As part of a proposed simplification reform, Finance Bill 2008 will revise
the definition of ‘control’, solely for the small companies’ relief. This
will ensure that the rights or powers of business partners will be
attributed only when certain tax planning arrangements have been made.
We welcome this proposed reform to ensure the small companies’ relief is
available in certain circumstances where the actual legislation defeats
the policy intention, which is, in general, to give relief where there
is no income fragmentation. There remain a wide range of other
circumstances where the policy objective is not achieved. It may be that
HMRC and the Treasury will continue work in this area to more fully
achieve their policy objective.