Associated companies - new rules

Hi, I am trying to get my head round the new rules from 1.4.11 for associated companies.


My understanding is that previously you count the direct interest plus the indirect interest. The indirect interest includes 'blood relatives' However there was an exception under ECS C9 that if there was no 'commercial inter-dependence between the companies then the term blood relative is limited to spouses and children who are minors. This election would therefore be very useful.

However a spouse would always be included for the purpose of including their indirect interest.


Under the new rules the ESC C9 exception no longer applies so that all blood relatives are included for the purpose of indirect interest.

Also there must be a commercial inter-dependence for the indirect interest to be considered. If there is none then you only include the direct interest.

Therefore a spouse's interest is no longer included without the commercial inter-dependence.

There is detailed criteria and guidance on commercial inter-dependence which inludes financial, economic and organisational.


Therfore there could be positive and negative impacts. Ultimately the whole purpose is ti define the company tax bands via the number of associated companies.

Husband and wife with individual companies may benefit as they are not automatically considered together in terms of indirect interests.

However for structures where there are many companies within a family tree, they can no longer claim the exception.

However if there was no commercial inter-dependence before of after the new rules then the relative would not be included in either situation. On the same token if there was commercial inter-dependence before and after the they would be included in both situations.

So as far as I can see there are only positive changes regarding families indirect interests.

Business Partners

However there could be a negative impact for interests of common business partners.

For example:

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 two companies associated?

Under the rules to 31 March 2011, s27(3): there were no relevant tax planning arrangements so it was unnecessary to attribute the rights of business partners. s450(3)(d): there was what appears to be a significant loan relationship, Y Limited may control Z Limited as a loan creditorm however, ESC C9: this will only associate the two companies where there is a past or present connection between the two companies. This issue probably requires closer inspection in order to drawn a conclusion.
Under the rules from 1 April 2011, however the two companies are associated because Z Limited is financially interdependent on Y Limited.

Anyone have a different take on any of this?
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