A summary of changes coming in April 2023
As at 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.
The associated companies rules applied in relation to periods before 1 April 2015, ie for financial years 2014 and earlier, and have been reintroduced for periods beginning on or after 1 April 2023, ie for financial year 2023 and later years as a consequence of the reintroduction of the standard small profits rate of corporation tax
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:
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.
HMRC manual: definition of associated companies CTM03570.
Control is defined under several headings:
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.