CTM03945 - Small profits rate: financial year 2023 onwards: associated company definition: exclusions

CTA10/S18F

A company is not treated as an associated company of another company if it carries on the business of making investments and throughout the accounting period it:

  • carries on no trade,
  • has one or more 51 per cent subsidiaries, and
  • is a passive company.

The meaning of business is considered in CTM03590 and CTM03591. 

A company is a passive company for an accounting period if the following conditions are met:

  • it has no assets other than shares in companies which are its 51 per cent subsidiaries,
  • no income arises to it other than dividends,
  • if it does have dividend income arising to it, they are paid to shareholders (redistribution condition), and those dividends are exempt distributions of a qualifying kindz,
  • no chargeable gains accrue to it in that period,
  • no management expenses are incurred in respect of the business of making investments, and
  • no qualifying charitable donations are deductible from total profits of the accounting period.

A distribution is an exempt distribution of a qualifying kind if it is:

  • a distribution for Corporation Tax purposes because (and only because) it falls within paragraph A, B, G or H in section CTA10/1000(1), and
  • it is exempt from the charge to CT for the purposes of CTA 2009.

See also CTM03915.