Employment Allowance and connected companies

Employment Allowance and connected companies

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I have spoken to two separate tax advice lines re Employment Allowance and whether two companies (X Ltd and Y Ltd) can claim this. X Ltd has 2 x 50% shareholders A and B . Y Ltd has 3 shareholders A, B and C who all own 33.33%.

The shareholders are not spouses or relatives of each other.

One tax advice line told me that both companies could claim the Employment Allowance as the shareholders were not connected.

The other advice line told me that they were connected as A and B could act together to control X Ltd and Y Ltd (reference to the Corporation Tax Act 2010 s450 subsection 5).

Please could you help advise me as to which is the correct treatment?

Thanks 

Alison

Replies (4)

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By cheekychappy
11th May 2016 12:25

You're not anonymous. You're Alison.

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Replying to cheekychappy:
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By Cheshire
11th May 2016 12:34

How do they even post so it comes up as anon? Not that Im looking to do so? Just never seen so many!

Funny though, if they respond they arent any more anyway.

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By Duggimon
11th May 2016 12:30

Tax line 2 wins the prize, s450 of CTA2010 is the relevant definition and A and B meet it together.

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By Fast German Car
11th May 2016 12:35

No prizes have been won yet.

Check the articles of company X. If there are any rules that means you can say with certainty whether it is A or B that will be chairman of any given meeting, and the chairman is given a casting vote, that alters the analysis.

Step 1 is to identify for each company all of the irreducible groups that have control. An irreducible group being one that when one person is taken away from the group, the group no longer has control of the company.

So for X Ltd (subject to my initial point), the only irreducible group is A and B. For Y Ltd there are three irreducible groups: A & B, A & C, and B & C.

Step 2 is to compare the irreducible groups for each company; if you find a common irreducible group, then the two companies are under control of the same persons, which means that they are connected and only one employment allowance can be claimed between them.

Since A & B are an irreducible group that is common to both X Ltd and Y Ltd (subject to my initial point), X Ltd and Y Ltd are connected, by virtue of being under common control, and only one employment allowance can be claimed between the two companies.

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