Under the draft legislation there appears to be a problem for shareholders in companies or groups participating in joint ventures. Activity carried on with a view to acquiring an interest of 10% or more in a joint venture company is trading activity under the legislation but actually holding shares in a joint venture company appears not to be. This means that a company or group can fail the trading tests if the shareholding in the joint venture is substantial in relation to the overall activity.

If this were to be the case, entrepreneurs relief would not be available.

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Companies pay corporation tax at 20% on the first £300,000, right? Wrong! A company pays at 20% of the first £300,000 divided equally between it and its associates.

Companies are associated where:

·         one of the companies has control of the other, or

·         both of the companies are under the control of the same person(s).

A person controls a company if he is entitled to >50% of:

·         the share capital, or votes;

·         the distributions to shareholders;

·         the assets on winding up (this includes loan creditors).

The problem is that when looking at control you have to take account of a person’s associates. These are:

·         spouse (includes separated, but not divorced) and civil partner

·         parents, grand parents and remoter forebear

·         brother or sister, including half siblings (but not step, aunts, uncles or cousins)

·         partner (as in a business partnership)

·         settlements and will trust associates; - trustees are associated where the individual, or any living or dead relative is or was the settler; and where the individual is interested in a settlement, then beneficiaries, remainder men and trustees are associates.

Under self-assessment it is your responsibility to make sure your company pays the right amount of tax.

So – are you sure you know all your company’s associates?

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