Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

The simplification has been broadly welcomed by industry groups because it deals with situations perhaps involving partners in firms of accountants. Under previous legislation, it would have been assumed that their companies were associated by virtue of the fact that they were partners rather than because there was commercial interdependence between the companies. The provision, particularly in the advent of large partnerships comprising several hundred partners, is to be welcomed. However, other situations are still caught by section 13 of the Income and Corporation Taxes Act 1988 when, because people are connected, it deems that their companies are associated even though there is no commercial interdependence.

For example, let us consider companies that are owned separately by relatives. Can the Minister clarify whether discussions are taking place on simplifying that aspect of the rules? There are other ways in which to deal with the same issue in respect of the annual investment allowance.

Angela Eagle (Parliamentary Secretary, HM Treasury; Wallasey, Labour)

The clause deals with associated company rules, and I welcome the hon. Gentleman’s support for the simplification process. Associated company rules provide a range of anti-avoidance protection measures within the corporation tax regime. For the purposes of claims for small companies rate, they do that by preventing directors or shareholders from fragmenting business activities in order to qualify  artificially in some ways for reliefs that were not intended, an issue that we have talked about before.

The clause amends associated company rules to make it easier to establish the number of other companies with which a company is associated, thus removing a potential cause of undue compliance burden. That is brought into effect, as the hon. Gentleman has rightly identified, by the changes to companies rules that allow for much larger partnerships—sometimes of more than 1,000. Clearly, it is not viable to expect a run-down on partnerships of 1,000 by one person and for that person to have detailed knowledge of all the holdings of the other partners in a way that perhaps happened in the past when partnerships were smaller.

The provision is the first of what we hope will be a series of simplifications. The hon. Gentleman referred to another area and further meetings will be scheduled to see how we can simplify the associated companies rules further. The matter is complicated. The stakeholders with whom we are engaging know and admit that it is complex. We are continuing to engage with them and we hope that further changes and simplifications in other areas, hopefully along the same lines, will come out of our discussions. With that reassurance, I hope that the Committee agrees that the clause should stand part of the Bill.