related party disclosures
Husband owns 100% of his company, wife owns 100% of her company.
Both companies provide services only, no stock/goods etc are bought or sold.
Wife's company provide some services to husband’s company. No services are provided the other way.
Husband’s company pays market rate for services provided. There is no coercion for any discounts or favourable financial treatment by wife’s company.
Husband does not want to make any “related party disclosures” in his company accounts.
Reading the definitions of what are classified as “related parties” in FRS8 it appears that none of those conditions apply in this case and the husband’s company does NOT need to make any related party disclosures.
However reading related party definitions in FRSSE2008 does not help. To my mind they only muddy the waters.
So – can anyone here clear up the matter for me?
Must the husband’s company state that it has paid £x to the wife’s company?
Conversely, is the wife’s company required to make related party disclosures in her company accounts stating that it has received £x from the husband’s company?
Any guidance much appreciated.
If they are related parties ... 1 thanks
... the same disclosure rules will apply to both Company H and Company W. That means that the amount and nature of the transactions and the balance outstanding at the year end would have to be disclosed in both companies.
In the FRSSE, the only relevant clause is that companies are defined as related parties if they are under common control. "Control" is not defined in the FRSSE, but I believe that spouses' shareholdings are always combined as if they are a joint shareholding and therefore, that Company H and Company W are both under the common control of H & W jointly and hence, are related parties.
related parties 1 thanks
an interesting question and a reasonably common scenario. What you have here are two business people, who happen to be husband and wife.
Assuming both companies come under your FRSSE, we need only look at FRSSE 2008.
Put FRS8 to one side as you won't need that one.
You need to refer to the definitions section and there you will find the definition of a related party - page 116 of the FRSSE.
They are related if one has direct or indirect control of the other party.
The parties are subject to common control.
one party has significant influence.
If none of the above apply, then they are not related parties ie if the 2 companies are truly independent of each other.
Directors of the reporting entity and their close families are related parties.
This means that the wife of the director is a related party. However, the transactions are not with the wife, they are with the wife's company.
On the basis of the above the transactions between the two companies need not be disclosed, but some would argue that they should, as the transactions are indirect (ie through the wife's company).
The key to this is how independent the two companies are of each other.