Nichola Ross Martin writes: in a recent magazine article I wrote on Associated Companies an example was misattributed to HMRC. This item is to clear matters up for any readers of that magazine.

In my recent article on  Associated Companies (in Tax Adviser June 2011) I abridged an example from HMRC's proposed addition to its company tax manual in order to illustrate a point I was making.

Unfortunately, that paragraph has been shown separately from the main articles and quotations have been added. This accidently attributes the whole paragraph to HMRC. This is not correct. The paragraph should be read as follows:  

For example: - this abridged example is taken from HMRC proposed additions to its company tax manual at CTM03780 illustrating how the rules may interact

Mrs Y and Mrs Z are partners in a law firm. Mrs Y owns 100% of Y Limited and Mrs Z owns 100% of Z Limited. Y Limited has lent Z Limited a sizable loan in order to keep it afloat.

Are the companies associated? 

My comments are that we can all agree that:

  • Under the rules to 31 March 2011, because there were no relevant tax planning arrangements it was not necessary to attribute the rights of business partners, so the two companies were not associated.
  • Under the rules from 1 April 2011, the two companies are associated because Z Limited is financially interdependent on Y Limited.

However, the irrespective of the fact that the two women are business partners and the partnership part of s27 has changed, it seems entirely possible that Mrs Y through Y Limited controls X Limited as its loan creditor throughout.

Note that the loan creditor test remains subject to Concession C9: HMRC will not treat a loan creditor as controlling the company where there is no past or present connection, the loan creditor is a close company or the loan is made on bona fide commercial terms.

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Detailed guidance and examples:


For accounting periods ending on or after 1 April 2011 see Associated companies checklist (new)

For accounting periods ending up to 31 March 2011 see Associated companies checklist (old)


Associated companies the new rules