As mentioned in last months newsletter where you have associated companies, the 19% tax rate on the first £300,000 of profit is divided by the number of associated companies. So if there are two associated companies, each can earn £150,000 before the tax rate increases from 19% to 32.5%.

Where one has a profit of £200,000 and the other £100,000 it is tempting to raise an inter-company charge of £50,000 from one to the other to equalise the profits at £150,000 to ensure all profits are taxed at 19%.

However, it's not quite as simple as that. Assuming the taxman spots the charge, he is likely to want to see that such a charge is for a commercial reason. It is important before doing this to commercially justify the charge.

For example, perhaps one of the companies uses staff of the other from time to time, or uses some office space of the other. Try to come up with as many items that could be charged from one to the other.

Also, the amount of the charge should be the market value, not just the cost. For example, if you needed a staff member for a week, think about how much it would cost to get them from an agency, not just the salary that the other company is paying them.

NEXT STEP:
Please contact us if you have any queries on this news release or ask a question.