What’s an associated company? And how can it affect your tax?

Knowing what constitutes an ‘associated company’ is about to become an important piece of information for business owners to know.

From 1 April 2023, the rules to decide whether or not you need to pay tax in instalments are changing. Whether you pay in instalments will soon be determined by the number of companies considered to be associated with each other.

From that date, the tax rate you pay will depend on your business’s taxable profits and the number of companies considered to be associated with each other.

What makes a company ‘associated’?

A company is associated with another company if one is under the control of the other. A company is also associated if both companies are under the control of the same person or persons, including linked parties.

Control is usually defined by reference to ownership of share capital, or voting power.

There are some exceptions to this:

• Dormant companies are excluded completely.
• Passive holding companies, who do nothing other than receive dividends and pay dividends, with no other activities are excluded.
• Businesses controlled by linked parties where there’s no substantial commercial interdependence will not be considered to be associated for these purposes.
• Factors to take into account concerning interdependence include common customers, shared premises and shared resources.
• Linked parties include a variety of different people associated with you as the owner. This includes:
  • Your business partners in a partnership.
  • Trustees in a trust you’re involved in.
  • Certain relatives: notably your husband, wife, or civil partner, your parents and more remote forebears, children and their more remote offspring, and your siblings.
  • For siblings, they’re only included if there is some blood-relationship, so a half-sister would be included, but not a step-sister.
  • Separated spouses are considered to be associated with each other, but not divorced former spouses.

Talk to us about calculating your associated companies

Calculating the number of associated companies prior to April 2023 should be a key part of your tax planning. Failing to do so could result in incorrect tax calculations and other errors.

We’ll help you clarify the number of companies to be treated as associates, and (in some cases) will advise where reducing the number can save you tax.