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HMRC internal manual

Company Taxation Manual

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

SI2011/1784 paragraph 5

Two companies are organisationally interdependent if (in particular) the businesses of the companies have or use:

  • common management
  • common employees
  • common premises
  • common equipment.


Mr and Mrs B each run their separate companies from their family home which is owned by Mrs B. Mr B’s company could not afford to buy or rent other accommodation to trade from. Apart from sharing the family home and the family’s domestic ‘phone line for occasional business calls and internet access there are no other financial, economic or organisational links between the two companies. Although Mr B’s company could not survive organisationally or financially without use of the family home, there is no direct or indirect financial support from either his wife or his wife’s company to either him or his company, and no organisational links which amount to substantial interdependence.

Y is the director and sole shareholder of Company A and Mrs Y is the major shareholder in Company B. The two companies operate a chain of hairdressing salons. Company A provides hairdressing services and Company B provides hairdressing products. Company A rents the premises, employs the stylists and receptionists and pays all the bills. There is no cross charge for the use of facilities. Credit card payments are accepted by the salons, the electronic swipe machines being in the name of Company A. There is a single bank account to which the swipe machines are attached. At the end of each day the bankings are split between the two companies and transferred to their main bank current accounts. The accounts of the two companies do not truly reflect the situation of the businesses but are just an artificial division. In reality the two companies are part of a single organisation - there is just the one business.

Z is the director and sole shareholder of Company P. He and his son are directors of Company Q, and own 50 per cent of the shares each. Companies P and Q run a builders’ yard selling wholesale to the building trade and retail to the public from the same premises, which Z owns. Company P is the trade wholesaler and has a ‘trade only’ counter; Company Q sells retail at a counter with its own access and parking in the yard. Company P’s buyer buys stock for both the wholesale and retail side but the product ranges, stocking levels and prices are different. There are separate ‘phone lines for the wholesaler and retailer. Z charges Company P a commercial rental. At the end of each week Company P invoices Company Q for goods supplied at cost plus a small mark-up. There is a proportionate division of overhead costs and Company P invoices Q an additional charge for other facilities. Wages for common employees are split in proportion between the two businesses. There are separate sale terms and tills for the businesses and they operate separate bank accounts and credit and credit card facilities. Each business has its own vehicles and the costs are kept strictly separate.

Where several business activities are operated from the same or adjoining premises, and the existence of one underpins the viability of the other, the companies will be interdependent. While the two companies may operate at arms length, there are significant organisational and economic links such that the retail business could not operate without the wholesale side. Accordingly, the companies will be associated.