No Rent Charge in Accounts

[TonyF99]

I work for an operational company in the service sector (A Ltd). I also keep the books for B Ltd which owns a freehold property. Part of this property was rented by A Ltd and part by another unconnected company( C Ltd). C Ltd did not renew their lease at the end of its term so A Ltd has taken over the whole property and is now B Ltd’s only tenant.

A is owned by two brothers who now also own B, making the two companies associated. In order to avoid having to split the marginal relief we would like to make B dormant as from the start of the next financial year (1 September).

The plan is to close B’s bank account, transfer the money to A and ensure there are no transactions to be entered in B’s books after 31 August. The owners would like to keep the freehold property in B.

My question relates to the subject of rent. As the plan stands, A Ltd would not be paying any rent at all for the premises it occupies. I would appreciate some guidance on what view the Revenue might take if the calculation of profit for Corporation Tax in A Ltd did not include a charge for rent?

[section 44]

Are these companies of sufficient size for the transfer pricing rules to be in point?

Does B have any expenses in respect of the property?

transfer the money to A

How would that be done? Based on what you have said, how could the directors of B do this (or allow/tollerate A occupying the property without payment) without being in breach of their fiduciary duties?

[Incredulum]

I would appreciate some guidance on what view the Revenue might take if the calculation of profit for Corporation Tax in A Ltd did not include a charge for rent?

The bald answer is no view at all. You are not claiming a deduction, so you are paying more tax in Co A.


The relevant company is B. What view might they take if the calculation of profit for B does not include any rental income.

Provided your companies count as small (for EU purposes) http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm then they are powerless to impute income into B for transfer pricing purposes.

If you are medium, then they have the power to make you include a notional rent charge between A and B by imposing a transfer pricing adjustment. I guess if you are thinking about marginal relief you are probably small - or even micro.


Presumably the transfer of money to A could be done by interest free loan. Again, provided you are small or smaller then no transfer pricing adjustment could be enforced.


Personally I would be relaxed about the fiduciary duties point where the two companies are under common ownership. Otherwise every time a company made a transfer pricing adjustment then there would be a breach of fiduciary duties.

[TonyF99]

Thank you very much for the responses

I have been researching the fascinating subject of Transfer Pricing as this seems to be the main factor. The majority of staff are part-time workers and I see from following the link Incredulum recommended that these are counted as fractions of full time "annual work units". I haven't made the calculation yet as the staff each work different hours but I think this is likely to push us into the medium category, though we are within the definition of small on turnover and balance sheet value. So unfortunately, it looks as though we will have to go back to the drawing board and rethink the plan.

Once again thank you for clarifying the position.

[Incredulum]

If the company counts as medium sized, as mentioned, HMRC have the power to make you undertake transfer pricing adjustments. However they are not in the habit of so doing.

If a company/group is large then it is required to make these adjustments. Personally, if I were you, I'd do as you originally planned.