Budget '08: associated companies

Taxation has been banging on for some years about the inequities of the associated companies rules especially as they affect entitlement to the small companies rate of corporation tax  (see Associated problems and Associated agonies).

In Associated problems HM Treasury stated:

'You are right that the associated companies rules can in certain specific circumstances lead to the type of outcome that you describe. While I accept that this is not ideal we have not been made aware of evidence that this happens on a large scale.

'The associated company rules are necessary to prevent high-profit companies from fragmenting so as to pay lower rates of corporation tax. In this way the current rules play an effective revenue protection role.

'Another highly significant strength of the rules as they stand is that they are simple and well...