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HMRC internal manual

Company Taxation Manual

Corporation Tax: small profits relief: substantial commercial interdependence: economic interdependence

SI2011/1784 paragraph 4

Two companies are economically interdependent if (in particular):

  • the companies seek to realise the same economic objective or
  • the activities of one benefit the other or
  • the companies have common customers


A and B are brothers who have built up successful internet businesses from modest beginnings when sharing a flat together as students. Right from the start both were interested in the business possibilities of web site design. A is the major shareholder and director of Company P which provides professional web design services, and B is the major director and shareholder of Company Q which provides graphic design services. Although their developing businesses benefited from the mutual exchange of ideas, especially in the early days, the brothers have had no other involvement in each other’s businesses, which operate entirely independently. The economic links between the two companies are too tenuous to associate them.

C is the major shareholder in Company Y and a 49 per cent shareholder in Company Z. The two companies operate a large public house, which is popular for family dining as well as having a thriving wet trade. Company Y handles wet sales and Company Z, which is run by the majority shareholder, C’s wife, manages the catering operation. Mrs C has financed the purchase of the assets of the catering business from a family legacy and a loan to Company Z which she is guaranteeing personally. Both businesses are insured separately. Each business fully meets its own costs, and the catering business is charged a commercial rate for the use of the shared premises, employees and facilities. Although there is no cross subsidy, the two companies share a common economic goal with a common customer base and mutually beneficial activities. In addition, the two companies are organisationally interdependent, sharing premises and employees. The two companies are accordingly associated.

Mr Q is the major shareholder in Company C which runs a large Chinese restaurant. It also operates a Chinese supermarket backed by its reputation as a restaurant. Mrs Q, who is a chef trained in France, is the sole shareholder in Company D which runs a gastronomically starred restaurant she has built up from scratch. Company D also imports delicacies from all over the world for sale on the internet, again backed by its reputation as a restaurant. Although Q and Mrs Q are husband and wife and in the same trade, there is no link between their companies, which have been trading since well before they knew each other. They are not associated.

M is the major shareholder in Company R, a dry cleaning business. Mrs M has opened a second dry cleaning business in the same town. This is run by Company S, of which she is the sole shareholder. Company S offers specialist services in relation to wedding and evening dresses in addition to the normal range of dry cleaning facilities. Company R acts as agent for these specialist services which it does not have the ability to supply itself. Company S and Company R share the same basic economic objective and their activities are of mutual benefit. The companies are therefore associated.

X is the director and sole shareholder of Company R which operates a chain of shoe shops. His wife also runs a shoe shop through Company S. Although the two companies are in the same line of business, there are no links between them and they operate entirely independently. Mr X and Mrs X started their individual businesses long before they met and they have kept the two enterprises entirely separate. The two companies are operated by associated individuals but there is no link between them, they are not associated.