Associated companies

[Red Wood]

Company A ltd and company b ltd have the same directors and share commercial facilities and machinery, however the products sold by each company although similar are not interchangeable and sold to different sectors within construction.

As an example, imagine one specialised in hammers, the other is axes. Technically both tools but used in very different environments.

Will the associated company rules affect CT position?

 

[DWS]

Company A ltd and company b ltd have the same directors and share commercial facilities and machinery, however the products sold by each company although similar are not interchangeable and sold to different sectors within construction.

As an example, imagine one specialised in hammers, the other is axes. Technically both tools but used in very different environments.

Will the associated company rules affect CT position?

Seem associated to me, you need to consider the VAT position as well if neither or only one is registered.

 

[Gyumri]

associated companies are those under common control by virtue of shareholdings not directorships. However without delving into it on Google I could stand to be corrected.

 

[UK Contractor Accountant]

Common control also can apply by virtue of control over assets.

so if the Directors are the same in both companies it could be argued that they are under common control.

 

[Red Wood]

HMRC, great bunch of lads

 

[Gyumri]

so if the Directors are the same in both companies it could be argued that they are under common control.

can you dig up the reference on the HMRC manual as I don't have time to check. I wouldn't think it applies to common directors.

 

[Rawlinson Pryde]

Associated Companies can be complex and we need to know more of the facts.

The HMRC manuals are from CTM03710 and associates CTM60150

Can’t post links but the ACCA have this.

accaglobal.com/uk/en/technical-activities/uk-tech/in-practice/2022/april/how-changes-corporation-tax-impact-associated-companies.html

 

[Red Wood]

can you dig up the reference on the HMRC manual as I don't have time to check. I wouldn't think it applies to common directors.

Any opinion on whether we changed it to one director had control of comp A, the other of Comp B respectively.

Both directors are related (family)

The one thing we cant change is the shared facilities. Comp A holds the lease, comp B uses some of the warehouse space.

 

[Gyumri]

Can’t post links but the ACCA have this.

accaglobal.com/uk/en/technical-activities/uk-tech/in-practice/2022/april/how-changes-corporation-tax-impact-associated-companies.html

That's a good link. I note:

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

However, the OP should read the details as that's were the devil likes to hide.

 

[Red Wood]

Associated Companies can be complex and we need to know more of the facts.

The HMRC manuals are from CTM03710 and associates CTM60150

Can’t post links but the ACCA have this.

accaglobal.com/uk/en/technical-activities/uk-tech/in-practice/2022/april/how-changes-corporation-tax-impact-associated-companies.html

I am not intelligent enoigh to come out with a rock solid opinion of our position based on the link.

UK tax law is overcomplicated.

 

[clamp1988]

I don't mean to hijack the thread and can if required start a new one.
Would a company be classed as associated if 2 companies have same director/s but operating from different premises in different activity and financially independant.

 

[Red Wood]

I don't mean to hijack the thread and can if required start a new one.
Would a company be classed as associated if 2 companies have same director/s but operating from different premises in different activity and financially independant.

Independent for sure

 

[Bobbo]

I don't mean to hijack the thread and can if required start a new one.
Would a company be classed as associated if 2 companies have same director/s but operating from different premises in different activity and financially independant.

Who are the shareholders of each company?

 

[clamp1988]

Who are the shareholders of each company?

Just 1 common director/shareholder, but totally separate independant operated business activity

 

[UK Contractor Accountant]

However, provisions with the legislation permit a disregard of companies under the control of associates, provided that there is no “substantial commercial interdependence” (SCI) between the companies concerned (s18G CTA 2010).

SCI is defined for these purposes by reference to the existing definitions given in the Employers Allowance legislation (para 3, Schedule 1 National Insurance Contributions Act 2014) and focuses on the extent of the following factors between the companies:

Financial interdependence – direct or indirect financial support between the companies.

Economic interdependence – companies would be ‘economically interdependent’ if (in particular) they seek to realise the same economic objective, the activities of one benefit the other, or they have common customers.

Organisational interdependence – this will be the case where the businesses of the companies have common management/employees, common premises, or common equipment.

 

[clamp1988]

@UK Contractor Accountant so the answer to my question is no association?

 

[UK Contractor Accountant]

IMO they are associated but the association is disregarded as on the face of it seems that there is no substantial commercial interdependence.

 

[clamp1988]

IMO they are associated but the association is disregarded as on the face of it seems that there is no substantial commercial interdependence.

In my opinion if both companies have no financial dependance, from a different industry sector, not sharing any resources and do not trade between themselves in any way to avoid paying tax or VAT, then they can't be associated.

 

[Newchodge]

In my opinion if both companies have no financial dependance, from a different industry sector, not sharing any resources and do not trade between themselves in any way to avoid paying tax or VAT, then they can't be associated.

But

Company A ltd and company b ltd have the same directors and share commercial facilities and machinery, however the products sold by each company although similar are not interchangeable and sold to different sectors within construction.

That sounds associated to me.

 

[clamp1988]

@Newchodge would you say my assertion in #18 is correct

 

[Newchodge]

@Newchodge would you say my assertion in #18 is correct

Yes, but it is completely irrelevant to the OP's issue.

 

[UK Contractor Accountant]

just 1 common director/shareholder

So both companies under the same control means "Associated"

But as my post states at 17 it is disregarded by HMRC for small company corporation tax rate relief where they are not co-dependent based on the facts of each case.

 

[UK Contractor Accountant]

The Association rule is to stop profit shifting from one company to one or more other companies so as to avoid the higher ctax rate of 25% as apposed to19%.

 

[clamp1988]

The Association rule is to stop profit shifting from one company to one or more other companies so as to avoid the higher ctax rate of 25% as apposed to19%.

That's why I further went to qualify about the tax in #18. in that instance would a director be right in putting/leaving the bit of associated companies in CT returns blank (0) or would he still insert 1

 

[clamp1988]

I would appreciate if anyone has a definitive view on my post above i.e #24

 

[Red Wood]

But


That sounds associated to me.

Yup, i agree

 

[clamp1988]

Yes, but it is completely irrelevant to the OP's issue.

@Newchodge I agree, but in the scenerio I posed in #18 would a director be right in putting/leaving the bit of associated companies in CT returns blank (0) .

 

[Newchodge]

@Newchodge I agree, but in the scenerio I posed in #18 would a director be right in putting/leaving the bit of associated companies in CT returns blank (0) .

Speak to an accountant

 

[Lucan Unlordly]

Interesting thread....

In terms of interdependence between 2 companies with some significant crossover into the same market but offering completely different products/services, i.e., online CRM database and physical products.
Could utilizing the contacts of the software company to promote the physical products of the other be seen as interdependence? The relationship is not essential but useful when dealing with long term customers who's filters (online and personal) would likely ignore contact from the newer company. The software company currently charges the products one a nominal fee for promotion/advertising but way below market rates.

 

[NickGrogan]

Sounds like a GDPR issue in the making.

 

[clamp1988]

This thread will probably be pinned as it may have more information/clarity than the HMRC website, only if my post #24 gets a definitive answer.

 

[Argentum Tax]

This thread will probably be pinned as it may have more information/clarity than the HMRC website, only if my post #24 gets a definitive answer.

Unfortunately you might only get a definitive answer, which you can rely on, from a qualified accountant or tax adviser if you pay for the advice. No one who is qualified to give an opinion will do so for free, otherwise he/she might have problems with PI insurance should that advice be wrong or open to challenge.

 

[UK Contractor Accountant]

That's why I further went to qualify about the tax in #18. in that instance would a director be right in putting/leaving the bit of associated companies in CT returns blank (0) or would he still insert 1

What is the level of tax at stake?

HMRC have always stated that the existence of associated companies is relevant only in cases where the amount of tax at risk is significant

 

[UKSBD]

I had 2 companies.

Same director, same shareholder, working from same premises, same equipment, same broadband, phone, etc.

Doing different things, neither VAT registered, never even considered they were associated.

I closed 1 business down which had a £3,000 loss in accounts.

My accounted passed on that loss to my other company using associated companies as a reason.

 

[clamp1988]

What is the level of tax at stake?

HMRC have always stated that the existence of associated companies is relevant only in cases where the amount of tax at risk is significant

There is no tax impications one made loss and the other profit under 10k

 

[UK Contractor Accountant]

My accounted passed on that loss to my other company using associated companies as a reason.

hmmm!!!- tax losses die with the company. You cant pass them to another company unless they are part of a Group structure.

 

[cheradenine]

Well, I'm in a similar position:

I have a business which is VAT reg'd and is basically IT contracting, owned 50/50 with my spouse.

I would like to set up another entity for a software product that I'm considering trying to make a go of (because I want a limited-liability protection, and not to VAT register until it makes some actual money - which it may well never do. Different customers, no financial dealings between each).

That ACCA link (accaglobal.com/uk/en/technical-activities/uk-tech/in-practice/2022/april/how-changes-corporation-tax-impact-associated-companies.html) mentions interdependence, but only if it's "Where businesses are owned by associates of that person (or persons), "

I.E: if it's owned by your partner and isn't significantly financially interdependent.

My reading is then it both my example and #1 _are_ associated companies.