A decision in the High Court has overturned HMRC’s
usual interpretation of the rules on associated companies.
The small companies rate of tax of 19% is payable where a
company’s profits are less than the upper limit of £300,000.
Where the company has associates (broadly companies under
common control) the upper limit has to be divided equally
between the companies, resulting in the companies paying
higher rates of corporation tax if they breach this reduced
limit.
The case concerned a company, which had at one time been
a trading company but now only owned former trading premises,
some of which were being let to an unconnected business.
Although the company was indeed receiving income it was held
not to be trading or in business for the purpose of the associated
company test. This meant that it was not treated as associated
for the purposes of dividing the upper limit.
If your company has associates it may be appropriate to
review the situation to see if it can benefit from this change
and save some tax.
Internet Link:
HMRC vs Salaried Persons Postal Loans Ltd
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