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Avoiding Associates

Everyone (well, almost everyone) is completely familiar with the idea that multiplying the number of companies under common control can affect the rate of Corporation Tax payable because of the impact on the Lower and Upper Relevant Maximum Amounts. Generally, the existence of lots of associated companies is regarded as a Bad Thing tending to increase the total tax burden (though this is a generalization: depending on how the profits fall between the companies, multiple associates can in some cases result in a decrease rather than an increase in the total tax burden). On the other hand, it is often commercially appropriate to give separate limited liability protection to a new venture.

How can one square the circle? Well, one way may be to constitute the new venture not as a subsidiary company but as a subsidiary LLP. The members may perhaps be the existing trading company and one or more of the shareholders of the existing company. For tax purposes the trading company's share of profit of the LLP will be treated as - in effect - a branch of the company's business: and there may even be an incidental tax advantage to be had inasmuch as the individuals' share of profit will (for tax purposes) also flow through to them direct.

Of course, the legal, accounting and commercial implications of a subsidiary LLP all warrant careful consideration: the structure will not be appropriate in every case. But it is something that should be in every adviser's tool-kit.

For advice and assistance on tax enquiries contact help@bkltax.co.uk or your usual consultant. And for more on BKL Tax visit our revamped website www.bkltax.co.uk.