Changes to the 51% related companies

Changes to the 51% related companies
Changes to the 51% related companies

In a nutshell

From 1 April 2023, the rules have changed from 51% related companies back to the associated company rules.

Prior to 1 April 2023, companies were connected if one company had at least a 51% shareholding in another company.  The new rules result in more companies being connected compared to the old 51% shareholding companies.

Why does this matter?

The result may be that a company’s tax rate (19%-25%) increases as more associated companies come into play.

For large or very large companies it will affect the quarterly instalment thresholds (QIPs).

What counts as associated?

A company is associated with another company if one controls the other, or both are under the control of the same person or persons. 

The new rules mean you do not just look at the number of shares an individual shareholder owns, but you must also consider the shares held by their ‘associates’.

An associate would include the individual’s spouse or civil partner, parents, siblings/ancestors.

Some exceptions

Some group companies are not treated as associated companies; these include:

  • dormant companies
  • passive holding companies (companies with no activity other than receiving and distributing dividends to group companies) and
  • companies owned by associates of that person (or persons), providing the relationship between those companies is not one of ‘substantial commercial interdependence’.

Examples where there may be substantial commercial interdependence include:

  • Financial interdependence – this is where one company has made a loan to the other or both companies have a financial interest in the same business
  • Economic interdependence – such as both companies having common customers, or, the activity of one company benefits the other
  • Organisational interdependence – this could include two companies employing the same people, having the same management team, or sharing premises/equipment.

It may be worth reviewing current structures as associations may not be obvious as the below example illustrates.

Example 1

Company A:  A father owns 60% of the shares and his daughter owns 40%.  The company trades as a consultancy firm which is solely run by the father as the only director-employee.

Company B: A father owns 10% of the shares and the daughter owns 90%. This company trades as a tutoring company solely run by the daughter as the only director-employee.

Each company is run from a different premise and there are no loans made from one company to the other.   Would they be associated? - > No, even though both companies are controlled by the same group of persons, as there is no substantial commercial interdependence the companies are not associated.

Example 2

The same companies exist as in Example 1, however, Company A loans money to Company B on a regular basis and vice versa.  Would they be associated? - >  Yes, both companies would be considered associated as there is financial interdependence.

If you have any queries or would like to discuss how your tax rates or QIPs may be affected, please contact Gursharan Sappal on 01932 830664 or email 

About the author

Gursharan (Sharan) joined Ward Williams in 2023 as our Corporate Tax Manager.  She started her career in tax in 2017 as a tax trainee and is ATT qualified. 

Sharan has experience dealing with a wide range of clients across a range of sectors, including charities,  small medium sized companies to larger companies and group companies.   She deals with the compliance side for corporation tax matters and provides additional support to the Corporate Service and Audit team.