How to extend the £300,000 small company band and avoid the 25% corporation tax rate

This is an interesting opportunity. The effective rates of corporation tax from April 2012 are: 0 - 300,000 = 20%
£300,000 - 1.5M = 26.25%
£1.5M+ = 25% So if your business earned more than £300,000 you'd wouldn't be subject to the 20% rate of corporation tax anymore but would instead be taxed at 25% on profits above £300,000. Once your profits exceed £300,000 you'll therefore see your corporation tax rate jump up immediately. You can't avoid these rules by simply setting up another company to carry out some of the trading and splitting the profits between the two (to keep below the £300,000 limit), as the associated company provisions would then apply. We've looked at these in other articles but in essence they will result in the tax bands available to each company being halved. How can the small company band be extended to larger profits? One option to avoid the increased rates of corporation tax would be to use a partnership or LLP to carry out part of the trade. As these are not subject to the associated company rules the profits would be split between the company and the partnership. The former would be subject to corporation tax at 20% if profits were less than £300,000. In terms of the partnership though this would be subject to income tax. If you wanted to avoid income tax completely and have all of the profits subject to the small company rates of corporation tax you could consider using a corporate partnership. In this case you'd have company A and company B in a partnership carrying out the trade. The profits of the partnership would be allocated to A and B in accordance with the agreed profit sharing ratio. So if profits were £500,000 for instance with a 50/50 profit sharing ratio each company would be taxed at 20%. The total corporation tax would be £100,000. If you used a single company which generated profits of £500,000 the corporation tax liability would be £112,500. The tax saving would therefore be £12,500. You could potentially use this strategy to have even larger partnerships which could even avoid the 25% rate of corporation tax. Points to watch out for There is one key issue that would need to be considered before this strategy would be successful: Firstly, you'd need to ensure that the two companies weren't associated with each other. The tax legislation will class a company as an associated company of another at a given time if at that time: