Associated companies: At a glance - www.rossmartin.co.uk (2024)

What is an associated company? Why does it matter? Does it affect the rate of Corporation Tax payable?

This is a freeview 'At a glance' guide to what is an associated company.Subscribers, see here for your detailed version.

At a glance

Two or more companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.

A company is an associated company of another at any time when:

  • One of the two has control of the other, or
  • Both are under the control of the same person or persons.

Control is determinedaccording to any ofthe following tests:

  • Percentage share ownership.
  • Voting power.
  • Any rights.
  • Entitlement to assets on winding up (loan creditors).

It is quite possible, using different testsfor different persons to be in control of the same company. This canproduce someunexpected results for Corporation Tax.

In deciding whether two or more companies are associated, control is determined by considering:

  • The direct rights ofan individual: these are therights of ownership personal to the individual.
  • The indirectrights of an individual: these arerightsof the individual'sassociates attributed to them according to whether the substantial commercial interdependence test applies.

An individual's associates include:

  • Spouses (and civil partners), but not if divorced.
  • Blood relatives.
  • An individual beneficiarywill be associated with a trustee or settlor ofa trust.

See

Exception: Substantial commercial interdependence

  • Where the relationship between two companies is not one of substantial commercial interdependence it is not necessary to attribute the indirect rights of an individual's associates in order to determine control.
  • Where there is no substantial commercial interdependence the only companies that willbe treated as being associated are thecompaniesunder the direct control of the sameindividual or group of individuals.

Where there is substantial commercial interdependence between any two companies, the control tests go back to the default rule. It is then necessary to determine control by also attributing the rightsofan individual'sassociates.

Why do you need to be able to identify your Associates?

  • From 1 April 2023 the upper and lower limits for Corporation Taxare apportioned according to the number of companies who are Associated in an accounting period.
  • There are limited exceptions for an associated company that is either dormant or a holding company.
    • See

A taxingexample:

Take three companies, Pearl Limited,Peach Limited and Plum Limited

Pearl LtdPeach LtdPlum Ltd
Shareholder%%%
Jim252580
Jim's mother, Jill30
Jim's father, Bill35
Jane454020

For any accounting period ending after 1 April 2011, are anycompanies associated?

Any twoout ofthe three shareholdersofPearl andPeachcompanycan controleach by virtue of votes in order to obtain a majority. If the companies are not substantially commercially interdependent then the irreducible group ofJim and Jane control both companies. Plum is in the sole control of Jim and so it is not associatedwith the others.

If the companies are substantially commercially interdependent then it is necessary to consider indirect control and start attributing the rights of anyone's associates. This means that either Jim or Jill or Bill can each control Pearl and Peach byattributing direct and indirect rights, so Jim will own his 25% plus his mother's 30% of Pearl Ltd, making 55%. He will directly own his 25% and indirectly his father's 35% of Peach Ltd making 60%. The result is thatone person controls the two companies.It could be Jim, Jill, or Bill, as we also find that Jim also controls Plum this produces the greatest number of associated companies.

If Plum is not substantially commercially interdependent on Pearl or Peach, but Pearl and Peach are substantially commercially interdependent on each other, then there is no requirement to consider indirect control when it comes to Plum.This means thatPlum has no associated companies but Pearl and Peach are associated with each other.

Useful guides on this topic

Close Companies: At a glance (freeview)
What is a close company? What is a participator? Why does it matter?If you are not sure, start here for a basic guide and signposts to more detailed guidance elsewhere on our site.

What is meant by control of company? What are the tests for control? When is a company deemed 'close' and who do you consider when you are working out who is controlling or Associated to your company?

Associated Companies
What is an associated company? What are the tax effects of having an associate? How to the attribution tests work to determine control? What do we learn from cases?

Checklists

Corporation Tax Associated companieschecklist;covering accounting periods ending on or after 1 April 2011.

Corporation Tax Associated companieschecklist (old);covering accounting periods ending up to 31 March 2011.

Related Tax Guides

For an overview, planning points and worked examples see the following guides:

Close companies basics:
Guidance on attribution,irreducible groups, andloan creditors.

Close companies: Associated company tests
Detailed guidancecovering the substantial interdependence tests.


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Associated companies: At a glance - www.rossmartin.co.uk (2024)

FAQs

What are associated companies in QIPS? ›

A company is an associated company if, for any part of the accounting period, one has control of the other, or both are under the control of the same “person” or “persons”. This will be the case where one person owns more than half the shares in the company, for example.

What is an associated company for UK tax purposes? ›

A company is an associated company of another at any time when: One of the two has control of the other, or. Both are under the control of the same person or persons.

What is an example of an associated company? ›

A company owned by Mr A and a company owned by Mrs A (spouse) may be associated unless it can be demonstrated that there is no substantial commercial interdependence. Examples of substantial commercial interdependence include: Financial interdependence – extent of financial support given.

What is the meaning of associated company? ›

An associate company, also known as an affiliate company, is a company in which a notable portion of shares is owned by a parent company. The portion usually lies between 20% and 50%. Ownership of higher than 50% of the stock legally turns it into a subsidiary of the parent company.

What are QIP shares? ›

A qualified institutional placement (QIP) was initially a designation of a securities issue given by the Securities and Exchange Board of India (SEBI). The QIP allows an Indian-listed company to raise capital from domestic markets without the need to submit any pre-issue filings to market regulators.

What is a 51% related group company? ›

Company B was a related 51% group company of Company A in an accounting period if for any part of the accounting period: (1)Company A was a 51% subsidiary of Company B; (2)Company B was a 51% subsidiary of Company A; or. (3)Company A and Company B were both 51% subsidiaries of another company.

What is an example of an associate company? ›

While the investor does not gain a controlling interest in the associate company, it allows them to exploit some of the associate company's strengths. It also helps them tap into new markets. An example of an associate company is Subaru where Toyota owns 20% of its shares.

Do foreign companies count as associated companies? ›

Any two companies are associated if at a given time in an accounting period one of the two companies has control of the other or both are under the control of the same person or persons. 16 Dormant companies can be disregarded but overseas companies are included.

What is an associated employer UK? ›

Related Content. Two employers where: One is a company of which the other (directly or indirectly) has control; or. Both are companies of which a third person (directly or indirectly) has control.

How do you know if a company is associated? ›

An associate company, in its broadest sense, is a corporation in which a parent company possesses an ownership stake. Usually, the parent company owns only a minority stake of the associate company, as opposed to a subsidiary company, in which a majority stake is owned.

What is the difference between an affiliated company and an associated company? ›

The terms affiliate and associate are often used synonymously to describe a business with a parent company that possesses a stake of between 20% and 50% ownership. A minority stake is an ownership or interest of less than 50%.

What does it mean to be associated with a company? ›

In most cases, affiliates are associates or associated companies, which describes an organization whose parent has a minority stake in it.

What is an associate company in the UK? ›

A company is an associated company of another at any time when: one of the two has control of the other; or. both are under the control of the same person.

What is an association of companies called? ›

A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry.

What makes two companies associated? ›

You control corporation Corp A and a person related to you controls another corporation Corp B. (The concept of related persons is discussed below.) Either you own 25% or more of the shares of Corp B or the related person owns 25% or more of the shares of Corp A. Corp A and Corp B will be associated.

What is an affiliated company for tax purposes? ›

An affiliated group of corporations is a group of corporations connected through stock ownership with a parent corporation. An affiliated group may file a consolidated return based on the tax year of the common parent corporation.

Is a US LLC a company for UK tax purposes? ›

HMRC, however, typically views LLCs as opaque entities for UK tax purposes (ie corporate entities taxable in their own right) and over the years, this mismatch has created complexity for UK members of LLCs for a number of reasons, including the risk of double taxation.

What is the difference between associated company and group company? ›

Associated companies are those under control of the same person or persons. This includes group companies (as with the 51% related company test) but it also includes the situation where an individual owns companies which are not in the same group.

What is a related or associated company? ›

The corporations are associated if both corporations are controlled by the same person or group of persons. Corporations may be associated because the same group of persons controls both corporations, but the members of this group do not act together and have no other connection to each other.

References

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