Associated Companies

Interpretation of rules around commercial interdependence

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I am sure someone will have considered this scenario and hopefully can provide their opinion.

Situation is we have two companies owned by husband and wife.  These companies are initially connected via control.  Let's say one company is a consultancy company and the other, a property rental company.

However, we then need to consider commercial interdependence.  There is definitely no Financial or Economic interdependence.  However, both businesses are run from home by the director, using one laptop anyone think this would be caught under organisantional interdepedence?  That states:

Organisational interdependence – this will be the case where the businesses of the companies have common management/employees, common premises, or common equipment.

So working from home, using a laptop for both businesses and the director works for both.

Surely it is not the intention that this would be caught under organisational interdependence and therefore be associated?

 

Replies (11)

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By Ruddles
08th Jun 2023 16:11

First question - what are the respective shareholdings?

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By Matrix
08th Jun 2023 16:17

Do you mean they are both owned by both spouses or each owned by one spouse?

If the former then why would you look at commercial interdependence at all if the control test is already met?

If the latter, a common Director surely means they are commonly managed as opposed to two separate businesses run by associated persons.

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Replying to Matrix:
By JCresswellTax
08th Jun 2023 16:33

Based on this, I thought you considered control first and then if there was commercial interdependence?

https://www.cronertaxwise.com/community/21022023-associated-company-rule...

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By JCresswellTax
08th Jun 2023 16:31

Sorry, let's say both companies are owned 50/50 husband and wife.

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Replying to JCresswellTax:
By Ruddles
08th Jun 2023 16:41

If 50/50 with nothing that gives H or W control of either company then companies are under common control, end of.

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Replying to Ruddles:
By JCresswellTax
08th Jun 2023 16:49

Thanks, looks like I am completely overthinking that scenario.

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Replying to Ruddles:
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By GR
28th Aug 2023 20:46

Thanks. I would agree with you regarding common control where both companies are 50/50 as both the husband and wife are the controlling party together.

Would I be right in thinking if one company was 51:49 and the other was 49:51 they would not be associated (if no commercial interdependence)?

And would be associated (if they were commercially interdependence)?

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Replying to GR:
By Ruddles
28th Aug 2023 21:05

I believe that is the case. Subject to other means of control

And to expand on my earlier comment, the reference to nothing was wrong. If eg the shares were 50:50 in each case, but H has 100% voting rights in A and W has 100% voting rights in B the companies would be associated, regardless of commercial interdependence.

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By JCresswellTax
08th Jun 2023 16:37

Re-reading perhaps i have misunderstood this bit "However, provisions with the legislation permit a disregard of companies under the control of associates, provided-that there is no “substantial commercial interdependence”

So lets say husband owned 55% of each company then they are associated no matter if commercially interdependent. But if husband owns 55% of one and wife 55% of other, then we do consider commercial interdependence?

That being said, still interested on opinions on organisational interdependence.

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Replying to JCresswellTax:
By Ruddles
08th Jun 2023 16:47

I would agree with the post above (Matrix) that there is an element of organisational interdependence.

The problem with the rules (which have a sound basis, to avoid eg the company of one brother running a fish and chip shop business in Wick being associated with his sibling's company operating as a garage in Penzance) is that they are subjective. I think that I would be arguing in your case that the interdependence is not "substantial" but as there is no definition for these purposes, who knows if I'd win?

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Replying to Ruddles:
By JCresswellTax
08th Jun 2023 16:51

Thanks again, thats kind of where I got to with that bit, if any interdependence it is minimal so perhaps worth a go in certain circumstances.

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