Tax reform and the small business threshold: who genuinely falls outside it

The reform package was reported as a broad reprieve for small business. Read against the qualifying tests, the exemption is considerably narrower than the coverage suggested, and several owner-managed companies that assumed they had fallen outside it have not.

The threshold is not a single number

The relief does not turn on turnover alone. It operates through a combination of gross turnover, the nature of the activity carried on, and, critically, whether the company forms part of a larger group or has related-party dealings that must be aggregated. A company reporting turnover comfortably below the headline figure can still fall outside the exemption because of the second and third limbs.

Worked example one: the single-entity trader

A company with one shareholder-director, annual turnover well under the threshold, no subsidiaries and no related-party transactions is the clearest case. It qualifies. Its obligation is to file, claim the treatment, and retain records supporting the turnover figure. Filing remains mandatory; the exemption relieves the liability, not the return.

Worked example two: the group member

A company with the same turnover, but which is one of three entities under common ownership, is in a different position. Where the group's combined turnover exceeds the threshold, the relief is not available to any member simply because each member is individually small. Clients frequently structure into multiple entities for commercial reasons and are surprised to find those reasons are irrelevant to the aggregation test.

Splitting a business into smaller companies has never been an effective threshold strategy, and this reform does not make it one.

Worked example three: professional services

Certain activities are excluded from the relief regardless of size. Where a company's income is derived substantially from professional or consultancy services, the exemption may be unavailable even at modest turnover. This is the limb that has caught the largest number of clients, because it is the one least reflected in general commentary.

Practical steps

Where the position is genuinely uncertain, the conservative course is to file on the ordinary basis and seek a ruling, rather than claim relief and defend it later at interest.