New rules for associated companies

From 1 April 2011 there is a new basis by which associated companies are determined. There are three subjective criteria, set out in law, any of which is sufficient on its own to enforce association.

They are:

• Financial interdependence - where one company gives support to the other or they share financial interests.
• Economic interdependence - companies seek the same econominc objective, the activity of one company benefits the other or they have common customers.
• Organisational interdependence - common management, common employees, common premises or common equipment.

Associated companies restrict the thresholds at which the lower and marginal rates of corporation tax apply to the individual companies. The threshold at which the annual allowance is available for capital expenditure on plant and machinery is also compromised where companies are associated.

With the new legislation, HM Revenue and Customs are likely to take a closer interest in business structures to ensure that those companies that are associated are taxed accordingly.

If you do wish to discuss your business structure please talk to Rashpal Parmar.