My client is a 50:50 shareholder in a building company (A) in which he has a large credit balance upon his director’s loan account; so in effect he ‘controls’ that company which is associated with a small property development company (B) which he owns 50:50 with his wife.
Here’s my plan: extend the year end of company (A) from 31st March 2011 to 1st April 2011 so as to take advantage of the relaxation in the associated companies rules which applies to accounting periods ending on 1st April 2011 onwards. Furthermore, no extra accountancy work to do as accounts may be drawn up 7 days either side of the accounting period. Leave company (B)'s accounting period as 30th September.
The new rules for associated companies state:
- If there is no commercial interdependence between the companies (which there isn’t), then proceed to step 2
- Step 2 says to consider ‘direct control’ of which there is none; ‘direct control’ means before attributing the rights of any associates. So I may ignore husband & wife in company (B)
- So as no commercial interdependence and as no ‘direct control’ ………….then under the new rules ……..neither company is associated.
Hey presto! I’ve saved a sizeable chunk of tax for my client or am I missing something? Readers’ views would be appreciated.