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HMRC internal manual

Company Taxation Manual

Close companies: tests: control - over the company's affairs

CTA2010/S450 and S1069(3) (formerly ICTA88/S416 (2))

The House of Lords’ judgment in the case of R v CIR ex parte Newfields Developments Ltd 73TC532 makes it clear that CTA2010/S450 (formerly ICTA88/S416 (2)) approaches the question of control of a company from two angles.

It begins with the proposition in the opening words of Section 450(2) that a person has control of a company if he or she exercises or is able to exercise or is entitled to acquire control, whether direct or indirect, over the company’s affairs. That is a test of actual control, reflecting its meaning in ordinary speech.

As regards the level at which control is exercised, the judgment in Steele v EVC International NV 69TC88 confirms that what is required is control at the participator or general meeting level, not at administrative or board level.

The rest of CTA2010/S450 goes on to widen the scope of the simple notion of control ‘enormously ‘ (as Lord Hoffmann said in his judgment in the Newfields case). It means that it can apply to people who have no real control over the company’s affairs but who shall be ‘taken to have control of a company ‘.

So in particular, but without prejudice to the generality of the preceding words, a person controls the company if he or she possesses or is entitled to acquire:

  1. the greater part of the voting power in the company,
  2. the greater part of the share capital or of the issued share capital of the company, or
  3. such part of the issued share capital as would, if the whole of the income of the company were in fact distributed among the participators (without regard to any rights which he, she or any other person has as a loan creditor) entitle him or her to receive the greater part of the amount so distributed, or
  4. such rights as would, in the event of a winding up or in any other circumstances entitle him or her to receive the greater part of the assets which would then be available for distribution among participators (see CTM60230).

For these purposes a person is treated as entitled to acquire anything which he or she is entitled to acquire at a future date or will at a future date be entitled to acquire.

In Lord Hoffmann’s words, ‘the intention of the legislature was to spread the net very wide‘ (p556).