Schedule 1: Employment Allowance: rules for determining if persons are connected
89.Part 1 of Schedule 1 contains rules for determining if companies are connected for the purposes of section 3(1).
90.Paragraph 2 provides the basic rule for the definition of "connected" companies. Two companies are connected with one another if (a) one of the two has control of the other, or (b) both are under the control of the same person or persons. Control has the same meaning as in Part 10 of the Corporation Tax Act 2010 (CTA 2010) (see sections 450 and 451 of CTA 2010). An LLP is to be treated as a company for the purposes of Part 10 of the CTA 2010. For the purposes of an LLP the test in section 450 of the CTA is modified so that control is where the other company possesses, or is entitled to acquire, rights to a share of more than half the assets, or more than half the income, of the LLP.
91.Paragraph 3(1) applies for the purposes of determining if two companies are connected to one another if the relationship between the companies is not one of "substantial commercial interdependence". Paragraph 3(2) disapplies the provision in section 451(4) and (5) of the Corporation Tax Act 2010 which attribute rights and powers over a company to a person or to their associates. Paragraph 3(3) explains the factors to be taken into account when determining whether two companies have a relationship of "substantial commercial interdependence". These are the degree to which the companies are "financially interdependent", "economically interdependent" and "organisationally interdependent".
92.Paragraph 4 provides that for the purposes of determining if a company is under the control of another, fixed-rate preference shares held by a company are ignored if the company holding them is not a close company, takes no part in the management or conduct of the company and subscribed for the shares in the ordinary course of business which included the provision of finance.
93.Paragraph 5 provides that some loan creditors are to be ignored in determining whether one company controls another company.
94.Paragraph 6 provides that where two companies ("A" and "B") are under the control of the same person by virtue of rights or powers (or both) held in trust by that person and there is no other connection between A and B those rights and powers are to be ignored when determining whether A and B are connected.
95.Paragraph 7 provides that if company ("A") is connected with another company ("B") and B is connected with another company ("C") then A and C are also connected with one another (if that would not otherwise be the case).
96.Part 2 of Schedule 1 contains rules for determining if charities are connected for the purposes of section 3(2).
97.Paragraph 8 sets out that two charities are connected to one another if they are connected in accordance with section 993 of the Income Tax Act 2007 (meaning of connected persons) and their purposes and activities are the same or substantially similar.
98.It also sets out that a charity which is a trust is to be treated as if it were a company for the purposes of section 993 of ITA 2007. Sub-paragraph (2) provides a definition of control that is to be applied to a charity that is a trust. The definition caters for situations where a trust is controlled by a person, for example where the person has the power to appoint trustees or power to control the way in which the trustees carry out their functions. A charity which is also a trust is also connected to a charity if at least half of the trustees are trustees of the other charity, persons who are connected with persons who are trustees of the other charity, or a combination of both and the charities’ purposes and activities are the same or substantially similar – see sub-paragraph (3).
99.Sub-paragraph (5) applies if a charity controls a company which is not a charity. The company is treated as if it were a charity for the purposes of section 3 and Part 2 of Schedule 1 to the Act, and the charity and the company are connected with each other for the purposes of section 3(2). Control has the same meaning as in Part 10 of the CTA 2010 and where the charity is a trust the trustees have control of the company.
100.Paragraph 9 provides if charity ("A") is connected with another charity ("B") and B is connected with another charity ("C") then A and C are also connected with one another (if that would not otherwise be the case).