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HMRC internal manual

Employment Related Securities Manual

Securities with Artificially Enhanced Value

Dependent subsidiary pre-16 April 2003 - certificate from the company

In addition to the company satisfying the two conditions in ERSM61030 during the period of account, the directors and auditors must comply with the following third and fourth conditions after the end of the period of account. If they do not, FA88/S86 (1) will not be satisfied and the subsidiary will be a dependent subsidiary for that period of account.

Condition 3 – certificate from directors

Per FA88/S86 (1)(c), the directors of the group parent must give a certificate that in their opinion the two conditions in ERSM61030 are satisfied in relation to the period of account. The certificate must be given: -

  • not later than two years after the end of the period of account,
  • to the Inspector who deals with the accounts of the subsidiary company.

The group parent for this purpose is the principal company of the group as defined inFA88/S86 (3). It is a company which has a subsidiary, but which is not itself a subsidiary. It is therefore the ultimate parent company, whether it is a United Kingdom company or an overseas company.

In the absence of a certificate for a period of account, a subsidiary is a dependent subsidiary for that period of account, even if it is clear that the two conditions in ERSM61030 are in fact satisfied for that period.

Condition 4 – report from auditors

Per FA88/S86 (1)(d), a report is to be attached to the certificate, addressed to the directors by the auditors of the subsidiary, that the auditors;

  • have enquired into the state of affairs of the company with particular reference to the two conditions, and
  • are not aware of anything to indicate that the opinion expressed by the directors in their certificate is unreasonable in all the circumstances.

As with the certificate, the absence of the auditors’ report means that the subsidiary is a dependent subsidiary for the period of account even if the two conditions in ERSM61030 appear to be satisfied.

Advance requests for Inspector’s views of company’s status

Because the question of whether or not a company is a dependent subsidiary is a factual one, which cannot be determined until the end of the accounting period, and then not until the relevant certificates have been provided, it is never possible to give advance clearance before the certificates have been received.