Associated companies: At a glance - www.rossmartin.co.uk (2025)

What is an associated company? Why does it matter? Does it affect the rate of Corporation Tax payable?

This is a freeview 'At a glance' guide to what is an associated company.Subscribers, see here for your detailed version.

At a glance

Two or more companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders.

A company is an associated company of another at any time when:

One of the two has control of the other, or
Both are under the control of the same person or persons.

Control is determinedaccording to any ofthe following tests:

Percentage share ownership.
Voting power.
Any rights.
Entitlement to assets on winding up (loan creditors).

It is quite possible, using different testsfor different persons to be in control of the same company. This canproduce someunexpected results for Corporation Tax.

In deciding whether two or more companies are associated, control is determined by considering:

The direct rights ofan individual: these are therights of ownership personal to the individual.
The indirectrights of an individual: these arerightsof the individual'sassociates attributed to them according to whether the substantial commercial interdependence test applies.

An individual's associates include:

Spouses (and civil partners), but not if divorced.
Blood relatives.
An individual beneficiarywill be associated with a trustee or settlor ofa trust.

See

Exception: Substantial commercial interdependence

Where the relationship between two companies is not one of substantial commercial interdependence it is not necessary to attribute the indirect rights of an individual's associates in order to determine control.
Where there is no substantial commercial interdependence the only companies that willbe treated as being associated are thecompaniesunder the direct control of the sameindividual or group of individuals.

Where there is substantial commercial interdependence between any two companies, the control tests go back to the default rule. It is then necessary to determine control by also attributing the rightsofan individual'sassociates.

Why do you need to be able to identify your Associates?

From 1 April 2023 the upper and lower limits for Corporation Taxare apportioned according to the number of companies who are Associated in an accounting period.
There are limited exceptions for an associated company that is either dormant or a holding company.
- See

A taxingexample:

Take three companies, Pearl Limited,Peach Limited and Plum Limited

	Pearl Ltd	Peach Ltd	Plum Ltd
Shareholder	%	%	%
Jim	25	25	80
Jim's mother, Jill	30
Jim's father, Bill		35
Jane	45	40	20

For any accounting period ending after 1 April 2011, are anycompanies associated?

Any twoout ofthe three shareholdersofPearl andPeachcompanycan controleach by virtue of votes in order to obtain a majority. If the companies are not substantially commercially interdependent then the irreducible group ofJim and Jane control both companies. Plum is in the sole control of Jim and so it is not associatedwith the others.

If the companies are substantially commercially interdependent then it is necessary to consider indirect control and start attributing the rights of anyone's associates. This means that either Jim or Jill or Bill can each control Pearl and Peach byattributing direct and indirect rights, so Jim will own his 25% plus his mother's 30% of Pearl Ltd, making 55%. He will directly own his 25% and indirectly his father's 35% of Peach Ltd making 60%. The result is thatone person controls the two companies.It could be Jim, Jill, or Bill, as we also find that Jim also controls Plum this produces the greatest number of associated companies.

FAQs

What is an associated company for UK tax? ›

Two or more companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders. A company is an associated company of another at any time when: One of the two has control of the other, or.

What are associated companies in QIPS? ›

A company is an associated company if, for any part of the accounting period, one has control of the other, or both are under the control of the same “person” or “persons”. This will be the case where one person owns more than half the shares in the company, for example.

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What is an associated company under the companies Act? ›

(6) "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

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What is an example of an associated company? ›

Attributing other person's rights to a participator

So, for example, if Mr A owns 100% of Company X and his brother, Mr B, owns 100% of company Y, those two companies are “associated”.

What is an associate company in the UK? ›

An associated company refers to a situation where two or more companies are connected in a way that allows one to influence or control the other.

How do you know if a company is associated? ›

In a simple example, two corporations are associated if one corporation controls the other or the same person (or group of persons) controls both corporations. The association rules also capture various configurations in which groups of related shareholders control two or more corporations.

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What is the associated companies rule? ›

In its simplest form, one company is associated with another if one company controls the other, or both companies are controlled by the same person(s) either now or in the future. There is a 'test' of control which is defined by voting power, ordinary share capital, distributable profits and rights on a winding up.

What is the difference between affiliated company and associated company? ›

The terms affiliate and associate are often used synonymously to describe a business with a parent company that possesses a stake of between 20% and 50% ownership. A minority stake is an ownership or interest of less than 50%.

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What is the difference between associate company and related company? ›

An associate company, in its broadest sense, is a corporation in which a parent company possesses an ownership stake. Usually, the parent company owns only a minority stake of the associate company, as opposed to a subsidiary company, in which a majority stake is owned.

What is an associated employer UK? ›

The relationship between two employers where one is a company of which the other has control, or both are companies of which a third person has control.

What is an affiliated company for tax purposes? ›

An affiliated group of corporations is a group of corporations connected through stock ownership with a parent corporation. An affiliated group may file a consolidated return based on the tax year of the common parent corporation.

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Is a US LLC a company for UK tax purposes? ›

HMRC, however, typically views LLCs as opaque entities for UK tax purposes (ie corporate entities taxable in their own right) and over the years, this mismatch has created complexity for UK members of LLCs for a number of reasons, including the risk of double taxation.

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How do you count associated companies? ›

Where a company has two or more associated companies, each company is counted to determine the number of associates that the company has, even if the companies are associated for different parts of the accounting period.

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