Two companies which I don't think are associated for Corporation Tax purposes - however their previous accountant seems to have treated them as being associated and corresponding limits for small company/marginal relief etc reduced. I thought I understood the rules regarding associated companies but before I ring him to ask why, I thought I would just check here that I am not missing anything obvious (i.e. so I don't sound like a complete idiot when I call him).
Company A is owned by Mr X (38%), Mr Y (38%), Mr Z (24%). Mr X & Y are directors of company A, Mr Z is not.
Company B is owned by Mr X (50%) and Mr Y (50%) and both are directors of company B.
Neither X, Y or Z are related or connected in any other way except for the above information.
Its a simple scenario, so am I missing anything - I don't think they are associated for CT purposes - does anyone else?
The only thing which springs to my mind is that Mr X is a fairly forthright character and if push comes to shove he will have the final say and so may 'exert significant influence' (just my opinion).
Thanks in advance
Replies (4)
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They're associated in my view
Looking solely at shareholdings, company A is controlled by any combination of two of X, Y and Z.
Unless X or Y have any specific rights (beyond mere buliishness), then it takes both X and Y to control company B.
That being the case, you have the same irreducible group of persons (X and Y) that control the two companies.
Agreed
X & Y together control 76% of Company A and 100% of Company B. The companies are under common control and therefore, are definitely associated.
The other answer
There is another view, and this is that company B is owned by two people and controlled by no one.
Looking at numbers of shares, no one person controls B. However, you would then consider who has the casting vote, or rights to what on winding up? Here we have Mr X so he,and no one else, controls B.
HMRC looks at controlling combinations, but if you think about it, two people can't be the controlling combination if noone else is involved, as there is no other combination to compare.
I think what is confusing is that the legislation talks of persons, but the point is that this is in the context of close companies where we are looking at different groups having control. In the case of B there is no other group to compare.
My verdict is not associated, as Mr X does not control company A. I have successfully argued this point with HMRC.
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