Associated companies and corporation tax

A detailed look at how control is defined for associated companies

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As of 1 April 2023, companies with taxable profits over £250,000 will pay corporation tax at the main rate of 25%. Companies with taxable profit of £50,000 or less will be subject to corporation tax at the rate of 19%, and companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief.

Broadly a company is associated with another company if at any time within the preceding 12 months one company has control of the other or if both are under the control of the same company or person or persons.

Meaning of ‘control’ (s450 CTA 2010)

Control’ is as defined in sections 450 and section 451 of CTA 2010.

A person (P) is treated as having ‘control’ of a company (C) if P exercises, is able to exercise, or is entitled to acquire, direct or indirect control over C’s affairs. It includes the possession of, or right to acquire:

a)    the greater part of the share capital or issued share capital of C; or

b)    the greater part of the voting power of C; or

c)     so much of the issued share capital of C as would give the right to receive the greater part of the company’s income, were all that income distributed; or

d)    rights to the greater part of C’s assets in a distribution on a winding-up or in any other circumstances.

Any rights that P or any other person has as a loan creditor are disregarded for the purposes of (c) above.

If two or more persons together satisfy any of the above conditions, they are treated as having control of C.

For the purposes of the above, a person is treated as entitled to acquire anything which they are entitled to acquire at a future date or will, at a future date, be entitled to acquire.

The control test is concerned solely with the shareholders’ ‘share’ power or voting power. Control by directors or management is irrelevant.

Attribution of rights and powers of others (s451 CTA 2010)
In determining whether any person (or persons) has control, the rights and powers of certain other persons may be attributed to them.

The rights and powers of a person’s nominee must be attributed to that person. That is, any rights or powers which another person possesses or may be required to exercise on the direction or on behalf of that person.

The following rights and powers may also be attributed to a person (P):

a)    of any company of which P has, or P and his associates have, control

b)    of any two or more companies within (a) above

c)     of any associate of P

d)    of any two or more associates of P.

‘Associate’ in relation to a person (P) is defined in section 448 CTA 2010 as:

  • any spouse or civil partner of P, any parent or remoter forebear of P, any child or remoter issue of P, or any brother or sister of P
  • any partner of P
  • the trustees of any settlement of which P, or any relative of P (living or dead), is or was a settlor
  • if P has in interest in any share or obligations of a company which are subject to a trust, the trustees concerned
  • if P is itself a company and has an interest in any shares or obligations of a company which are subject to a trust, any other company which has an interest in those shares or obligations
  • if P has interest in any shares or obligations of a company which are part of a deceased person’s estate, the personal representatives of the deceased
  • if P is itself a company and has an interest in any shares or obligations of a company which are part of a deceased person’s estate, any other company which has an interest in those shares or obligations.

Finance Act 2021 Schedule 1 paragraph 18 provides the following exemptions:

A.     A company will not be treated as an associate of another if it is a passive holding company (broadly where a company only receives dividends from its subsidiaries and pays these to its shareholders, and the company receives no other income or expenses.)

B.     Where businesses are owned by associates of that person (or persons), if the relationship between one or more companies is not one of substantial commercial interdependence, they will not be deemed as associated. The following factors should be taken into account in determining whether a relationship between two companies amounts to substantial commercial interdependence.
The degree to which the companies are:
Financially interdependent
Two companies are ‘financially interdependent’ if one gives financial support (directly or indirectly) to the other, or each has a financial interest in the affairs of the same business.
Economically interdependent
Two companies are ‘economically interdependent’ if the companies seek to realise the same economic objective, the activities of one benefit the other, or the companies have common customers.
Organisationally interdependent
Two companies are ‘organisationally interdependent’ if (in particular) the businesses of the companies have or use common management, common employees, common premises, or common equipment.

  1. Fixed rate preference shares held by a company are ignored in determining if one company is under the control of another if the company holding the shares is not a close company, takes no part in the management or conduct of the issuing company or of its business, and subscribed for the shares in the ordinary course of a business which includes the provision of finance.
  2. A company is not under the control of another company if the only connection (past or present) between the two is that one company is a loan creditor of the other and either the creditor company is not a close company or the creditor relationship arose in the ordinary course of the company’s business.
  3. Where two companies are controlled by the same person by virtue of rights or powers held in trust by that person, those rights or powers are ignored in determining whether the two companies are associated.

More information

HMRC's manual CTM03570 provides a definition of associated companies.

Control is defined under several headings:

  • control over the affairs of the company  CTM60220
  • control right to receive most assets CTM60230
  • control rights in a winding-up CTM60320
  • control over income of the company (see (3) of CTM60220).

Guidance in determining the rights attributed to any person can be found in CTM60140 to CTM60170.

Guidance on specific exemption can be found in CTM60105.