CTM03785 - Corporation Tax: small profits relief: substantial commercial interdependence: financial interdependence

SI2011/1784 paragraph 3

Two companies are financially interdependent if (in particular):

  • one gives financial support (directly or indirectly) to the other, or
  • each has a financial interest in the affairs of the same business.

Examples

R is the major shareholder and director of Company D which provides IT services. His son, S, is the major shareholder and director of Company E which provides business management services. R provided, as a family, rather than business matter, a personal guarantee in respect of a bank loan made to Company E when S set up the business. The companies are controlled by associated individuals but there is no financial (or other) link between the two companies because the guarantee has been given by R in a personal capacity and this financial support has no link to Company D - the companies are therefore not associated. If, however, the loan to Company E was made direct from Company D or R had given additional security over the assets of Company D in support of his loan, there would be a financial link between the two businesses, either directly or indirectly, which would cause the companies to be 바카라 사이트˜associated바카라 사이트™.

L is the major shareholder and director of Company M, a large road haulage company. His son P is the sole shareholder in Company Q, a furniture business, which P has built up from scratch and runs with his wife. The premises occupied by Company Q are owned by L but Company Q pays a market rent for them. The two companies are controlled by associated individuals but there is no financial (or other) link between the companies. L has never had any involvement with Company Q and P has never had any involvement in Company M. Since there are no financial links, beyond a simple rental of premises on market terms, the companies are not interdependent and therefore not 바카라 사이트˜associated companies바카라 사이트™.

Some years ago Mr X started a taxi business, Company T, using money loaned to him by his wife Mrs X, secured against the assets of her property rental business, Company U. Company T was successful and over time paid off the loan in full. Neither Mr X nor Mrs X now has any involvement in the other바카라 사이트™s business and similarly the two companies have no links to one another. In the absence of any links between the two companies, whether financial, economic or organisational, Mrs X and Company U바카라 사이트™s historic link with Company T is not relevant and the two companies are not associated.

On retiring, Mr F sold his farming business to his sons G and H.  The two sons raised the money to buy their father바카라 사이트™s farm through a joint loan from the bank secured against the assets of the business.  On taking over the farm they split it into two companies one of which was owned by G and the other by H.  Both companies undertake similar, albeit not identical activities, using substantially common facilities, staff and equipment. m While the two companies are separately owned, the level of financial, economic and organisational interdependence between G and H and their companies means that their two companies are associated.

Mr J owned a newsagents Company T and a joinery business, Company U. On retirement Mr J바카라 사이트™s son bought all J바카라 사이트™s shares in Company T and Mr J바카라 사이트™s daughter bought all J바카라 사이트™s shares in Company U.  Neither J바카라 사이트™s son nor daughter has any involvement in the other바카라 사이트™s company and the companies themselves have no economic, financial or organisational links.  Notwithstanding Mr J바카라 사이트™s previous ownership of both, company T and company U are not associated.