What are 'associated companies'?
A company is considered to be an 'associate' of another company if at any point in the last 12 months one company has control of the other, or if both are under the control of the same company or person(s).
What counts as control?
You are considered to have control of a company if you have the ability to exercise, or are entitled to acquire direct or indirect control over the company’s affairs.
Control includes the possession of, or the right to acquire:
- The majority of the share capital in the company
- The greater part of the voting power in the company
- The rights to the greater parts of the company’s assets in a distribution on a winding up or in any other circumstances.
If two or more persons together meet any of the above criteria they are treated as having control. The control test is concerned solely with shareholders, and control by directors or management is irrelevant.
Attribution of rights and powers of others
When determining whether you have control, the rights and powers of certain other people may be attributed to you. Any rights or powers which another person possesses, or may be required to exercise on your direction or on your behalf must be attributed to you.
The following rights and powers of others may also be attributed to you:
- of any company of which you have, or you and your associates, have control
- of any associates of yours
An associate in relation to a person is defined as any partner, spouse, civil partner, any parent, child or sibling.
However, where businesses are owned by associates of that person, if the relationship between the companies is not one of “substantial commercial interdependence”, they will not be considered to be associated.
The following factors should be taken into consideration when determining whether a relationship between two companies amounts to substantial commercial interdependence.
The degree to which companies are:
- Financially Interdependent - If one gives financial support to the other, or each has a financial interest in the affairs of the same business.
- Economically interdependent - If the companies aim to achieve the same economic objectives, the activities of one benefit the other, or the companies have customers in common.
- Organisationally interdependent - If the companies have or use the same management, employees, premises, or equipment.
What does it mean if I have an associated company?
If you have an associated company then the small and main profits thresholds of £50,000 and £250,000 respectively will be divided by the number of associated companies that you have. Effectively these thresholds are shared between all of your associated companies which means that all associated companies would start to pay a higher amount of corporation tax sooner than they otherwise would have had they not been considered an associate company.
The rules on associated companies can be very complicated so please do get in touch with your Client Manager if you have any queries or if there is anything you are not sure about