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Readers' forum - Associated companies?

03 November 2005
Issue: 4032 / Categories: Forum & Feedback , HMRC powers
Approximately ten years ago, our limited company client entered into a manufacturing agreement to supply components to another UK-based limited company.

Since then the trading agreement has been varied but always on commercial grounds. The amount of business this agreement represents to my client has varied over this period from 85% of turnover (and of profits) to a current level of 45%. Two brothers own my client jointly; their business having been set up many years ago as a partnership and in 1993 they set up the limited company and transferred some business into it. The main growth achieved by the limited company has been new contracts including the one outlined above. The partnership still trades and generates trading profits.
The issue is that a third brother owns the other company. His business is approximately three times the size in terms of turnover. Furthermore there are no agreements between the two limited companies other than the supply contract; there are no cross-company shareholdings; no mention of cross-company...

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