Annex 1: Minor changes in the law Change 3: Small profits rate and marginal relief: relaxations in the test for being an associated company: sections 25 and 28 to 30 and Schedule 1(section 99 of CAA) Paragraph 2: Fixed-rate preference shares
Under section 416(2) of ICTA a company controls another if it possesses the greater part of its share capital. Share capital includes preference shares.
So a lending company providing finance to a borrowing company by way of preference shares may technically control the borrowing company with the result that the two companies are associated. Furthermore, all borrowing companies controlled in this way by the lender are associated with each other.
By concession, some holdings of fixed-rate preference shares are ignored for the purpose of determining control for the purposes of small companies’ relief. The concession applies if the holding of fixed-rate preference shares is the only reason for two companies to be treated as associated.
Section 28 enacts this part of the concession.