The measure

The Budget proposes a simplification to the associated companies' rules, which dictate whether a company can access the small companies' rate or marginal rates of corporation tax.

Each company looking to claim lower rates of corporation tax must calculate the number of their associated companies in order to demonstrate that they fall within those lower rate bands of corporation tax. A company is an 'associated company' of another company if one of the two has control of the other, or both are under the control of the same person or persons.

The definition of 'associated company' has historically been complicated for some companies to navigate. Companies are required to count not only the companies that are controlled by their own major shareholders but also companies that are controlled by those shareholders' families or business partners. It is these rules which the Government are looking to simplify.

Who will be affected?

This measure will only affect companies with taxable profits of less than £1,500,000. Specifically, it will affect companies within that group who are unable to claim lower rates of corporation tax (or have difficulty in claiming them) because they do not have full visibility over the business interests of their shareholders' family or business partners.

When?

Legislation (including detail on commencement) will be included in Finance Bill 2011.