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Tribunal tests small companies’ relief definition

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1st Nov 2011
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A property company has lost an appeal to pay the small-company rate of tax, in a tribunal case which tested the definition of a close investment-holding company. Nick Huber reports.

In Reddleman Properties v HMRC the first-tier tribunal considered whether the company met the definition of a close investment-holding company, making it liable to full rate of corporation tax, rather than the small-company rate.

Reddleman intended to have a portfolio of property let to unconnected persons but in fact its main source of income was from premises used by a trading partnership of which one of the controlling participators was a partner. 

HMRC thought the company in 2008 was a close investment holding company (CICH) and issued an amended assessment, which the company appealed. The amendment meant that Reddleman’s profits were charged at the full rate of CT, increasing the liability to tax from £18.8m to £25.8m.

“The issue was whether the company could claim the small companies’ relief on its intention or whether the anti-avoidance legislation imposed an obligation to pay the full CT rate,” said Derek Allen, director of tax at the Institute of Chartered Accountants of Scotland (ICAS).

Another key point in the case, according to a note published earlier this year by Ernst & Young, was whether the company “existed wholly or mainly for the purpose of making investments in land which was, or was intended to be, let to unconnected persons.”

In its June ruling the tribunal accepted that the directors of Reedleman had “an intention of letting to unconnected parties, but in the opinion of the tribunal, this did not reflect what was the ‘purpose’ of the company in 2008.”

Allen notes another interesting aspect to the case. Stuart Walker, director of Reddleman, had sought anonymity and did not wish the decision published. The tribunal ruled that there must be some compelling reason why any part of the proceedings must be in private. 

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By gbuckell
03rd Nov 2011 09:59

Hyper inflation

The reported tax figures should be thousands, not millions! If tax bills were that large, the issue of small company rate would be rather irrelevant!!

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By The Black Knight
07th Nov 2011 10:52

Yep would agree with that !

The tax figure did rather exceed the small companies rate threshold !

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