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HMRC internal manual

Employment Related Securities Manual

Securities with Artificially Enhanced Value

Dependent subsidiary pre-16 April 2003 - action on receipt of certificate

When a certificate is received within the two year time limit in ERSM61040, the Inspector should normally acknowledge receipt of it and tell the company that the certificate will be reviewed in due course to see whether it can be accepted.

If the company specifically asks for confirmation that the certificate is accepted, either when it is submitted, or on receipt of the acknowledgement letter, the Inspector should take the following action:

  • Review the accounts for the parent company and its subsidiaries for any indication of transactions between group companies.
  • Ask the company for details of all intra-group transactions during the accounting period.

Where it is clear that there are no intra-group transactions, or that these are only minimal, the company can be advised that, on the basis of the information provided, the certificate is accepted and the company is not a dependent subsidiary for that period of account.

Most director’s certificates and auditor’s reports given within the two year time limit will be acceptable. However if you receive a certificate and a report for a period of account in a case where it appears from the accounts that either of the two conditions in ERSM61030 is not satisfied, you should submit the papers to the Technical Adviser ESSU (ERSM10040) for advice before contending that the subsidiary is a dependent subsidiary company for that period of account.

After the expiry of the time limit

Submitting a director’s certificate and auditor’s report within the two year time limitin ERSM61040 is itself one of the conditions which must be satisfied for a subsidiary not to be a dependent subsidiary for a period of account. It is not the same as an election.

When a certificate is received after the expiry of the time limit the company should be advised that the third condition (ERSM61040) has not been satisfied. The subsidiary is therefore a dependent subsidiary for the period of account.