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Where Taxpayers and Advisers Meet

Corporation Tax--Associated Companies

Posts: 2
Joined: Wed Aug 06, 2008 3:33 pm

Postby djdaw » Mon Jan 23, 2006 7:11 am

My employer, a UK based Ltd Coy., is 100% owned by a BVI Coy which in turn is 100% owned by an Offshore Trust.

In 2003, the BVI Coy loaned the UK Ltd. Coy funds in the region of £100,000 on which interest of 10% was agreed. The loan was fully repayed during 2004/5 tax year and nett interest of approx. £7000 was paid to the BVI Coy. during this tax year.

No other trade was conducted by the BVI Coy nor does it hold any other assets other than a bank account.

The tax authorities have advised that the single interest payment constitutes a trade and classifies the BVI Coy as an Associated Coy. They want to disallow the UK Coy the benefit of the small companies tax rate of CT.

Are there any similar cases on which previous decisions have been made and what is the true interpretation of associated trade?

I would be very grateful if anyone could steer me in the right direction or advise what defence might be helpful.

Posts: 1187
Joined: Wed Aug 06, 2008 2:19 pm

Postby Taxbar » Mon Jan 23, 2006 7:48 am

Time for expert advice , but it looks as though the HMRC might be simply following the Statement of Practice set out in

The rules will give you half of the small co's rate not nothing!

Daniel Feingold

Posts: 2
Joined: Wed Aug 06, 2008 3:33 pm

Postby djdaw » Mon Jan 23, 2006 9:19 am

Hi Daniel,

Thank you for your comments. I was aware that the rate could be halved. There are cases however where coys. were classified as associated because they were holders of other investments and therefore "traded" in these investments. I am not aware of a ruling however which was clearly not direct trading and had one simple transaction actually unrelated to trading.

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Joined: Wed Aug 06, 2008 3:15 pm

Postby Lambs » Mon Jan 23, 2006 3:49 pm


You need to differentiate between carrying on a trade, and carrying on a business. The latter is broader, and relevant for this issue. A company may not be treated as associated where it is not carrying on a business. The facts of the matter are germane, including the history of the companies involved, if case law in this area is anything to go by.

I have to say that prima facie I lean towards HMRC on this one, but it's difficult to say and as T has already advised, you should weigh up the amount of tax at stake, (bearing in mind that Trusts do have an awful habit of associating the heretofore-unassociated), and invest in some direct professional advice.



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