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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: Meaning of “related”

CAA01/S38A and S38B, S51A to S51N


A company is related to another company in a financial year (year from 1 April to the following 31 March) if one or both of conditions (a) and (b) below are met in relation to the companies in that financial year.

Unincorporated businesses

A qualifying activity (that is not carried on by a company) is related to another such qualifying activity in a tax year (year from 6 April to following 5 April) if one or both of conditions (a) and (b) below are met in relation to the qualifying activities in that tax year.

The two conditions:

(a) the shared premises condition and

(b) the similar activities condition

You should note that the two conditions are applied to companies under common control and unincorporated businesses under common control completely separately. There is no rule that requires a taxpayer to consider whether, for example, a company he controls should be treated as “related” to a self-employed business he owns, or whether his company should be treated as related to a partnership in which he has a controlling interest.

The shared premises condition

This condition is met where a business carries on its qualifying activity from premises, and another business under common control also carries on its qualifying activity from the same premises at the end of the relevant chargeable period of either business. The term “premises” is not defined in the legislation so has its normal everyday meaning.

Remember that this condition is applied separately to -

  • two or more companies under common control and
  • two or more unincorporated businesses under common control.


It is not considered that the shared premises condition would be met in circumstances where (say) a farmer, who runs an on-going dairy farming business on his farm, as well as a furnished holiday letting business from a cottage on his farm, does some paperwork for both in the sitting room of his farmhouse at nights. The qualifying activity of farming and of furnished holiday letting is not conducted from the same, shared premises: one is conducted from the fields, barns and out-houses, the other from a cottage on the land. The fact that some administrative work in relation to both qualifying activities may be carried out from the business owner’s home is not relevant to determining the premises where the qualifying activity is actually conducted.

Here is an example of “shared premises” in relation to each legal form of business:-

Example 1

In the 2009 financial year, Blue Ltd began the year with sole occupancy of Colour House, and also had sole occupancy at the end of its chargeable period on 30/4/09. However, on 1/6/09 Green Ltd (a company controlled by the same person as controls Blue Ltd) moves into Colour House. Green Ltd has a chargeable period ending on 31/12/09. Because Blue Ltd and Green Ltd both occupy Colour House at the end of Green Ltd’s chargeable period, the two companies are “related” for AIA purposes in the financial year 2009. So the two companies will only be entitled to a single AIA of £50,000 that they may allocate between themselves in any way they see fit.

Example 2

Tracey runs a dance studio business from the premises Tracey’s Studio in the High Street. In the tax year 2010-11 Tracey decides to start up a café business at one end of her studio, which she runs as a separate business with separate accounts. Both businesses have chargeable periods ending on 5/4/11. Because both businesses shared the same premises at the end of their 2010-11 chargeable periods, Tracey is entitled to a single AIA of £100,000 that she may allocate between the two businesses in any way she wants.

The similar activities condition

The similar activities condition is met when two or more companies or two or more unincorporated businesses (as the case may be), that are under common control in either case, derive more than 50% of their turnover in the relevant chargeable period from activities that fall under the same first level of the NACE classification system.

Like the previous test, this test must be applied separately to

  • two or more companies under common control and
  • two or more unincorporated businesses under common control


NACE is a well established statutory industry classification system. The first level divides industries into 17 main classifications. There is a tool available on the Office of National Statistics (ONS) website at The relevant pages are also reproduced below. When looking at the ONS list to find out into which classification an activity falls, simply click on the letter for each classification to drill down to the more detailed descriptions. If two or more qualifying activities fall under the same classification letter then they are “similar activities” for AIA purposes.

Or, if you prefer, you can either e-mail or phone the ONS classification Help Desk on 01329 444970 to find out whether two or more activities fall under the same first level category and so should be regarded as “similar”.


The Table below lists the “first level” classifications or 17 main sections into which standard industry classification [SIC (92)] is divided, each denoted by a single letter from A to Q (compared in the right hand column with former divisions):-

PRESENT SECTIONS FORMER DIVISIONS (Brackets denote part of a division)
B FISHING O (Fishing)
C MINING AND QUARRYING 1 (Extraction of fuels)
(Extraction of minerals and ores)    
  D MANUFACTURING 1 (Fuel processing and production)

2 (Manufacture of chemicals and man-made fibres)

3 Metal goods, engineering and vehicles industries

4 Other manufacturing industries    
  E ELECTRICITY, GAS AND WATER SUPPLY 1 (Production and distribution of electricity, gas; Water supply)
  F CONSTRUCTION 5 Construction
  G WHOLESALE AND RETAIL TRADE; REPAIR OF MOTOR VEHICLES, MOTORCYCLES AND; distribution Commission HOUSEHOLD GOODS 6 Wholesale and retail agents; Repairs)
  H HOTELS AND RESTAURANTS 6 (Hotels and catering)

  | 7 Transport and communication
9 (Tourist offices; Radio and tv transmission) | | J FINANCIAL INTERMEDIATION | 8 (Banking, finance and insurance) | | K REAL ESTATE, RENTING AND BUSINESS | 8 (Business services; ACTIVITIES Dealing in real estate)
9 (Research & development; Other services) | | L PUBLIC ADMINISTRATION AND DEFENCE;COMPULSORY SOCIAL SECURITY | 9 (Public administration, national defence and compulsory social security) | | M EDUCATION | 9 (Education) | | N HEALTH AND SOCIAL WORK | 9 (Health and veterinary services; Other general services to the public) | | O OTHER COMMUNITY, SOCIAL & PERSONAL SERVICE ACTIVITIES | 9 (Sanitary, recreational and personal services) | | P PRIVATE HOUSEHOLDS WITH EMPLOYED PERSONS | 9 (Domestic services) | | Q EXTRA - TERRITORIAL ORGANISATIONS AND BODIES | 9 Diplomatic representation international organisations, allied armed forces) |