Section 1124 of the Corporation Tax Act 2010 sets out the statutory definition of “control” used across parts of the UK corporation tax code. It defines when a person has the power to direct a body corporate or a partnership, and it applies only where another provision of the Corporation Tax Acts specifically calls on it. Its most important use is in the transfer pricing rules, which decide whether related parties must price their transactions on arm’s-length terms.1Legislation.gov.uk. Corporation Tax Act 2010 – 1124 “Control”
What Control Means for a Company
For a body corporate, a person has control if they have the power to secure that the company’s affairs are conducted in accordance with their wishes. That power can come from two sources: holding shares or voting power in the company (or in another body corporate connected to it), or provisions in the company’s articles of association or other governing documents.1Legislation.gov.uk. Corporation Tax Act 2010 – 1124 “Control”
The test is about capability, not use. You do not have to show that the person has actually directed the company. If the structure gives them the legal ability to dictate outcomes at shareholder or board level, that is enough.
In most cases control follows a majority of voting shares: enough votes to pass or block ordinary resolutions at a general meeting. But it can also arise from tailored articles that give a minority shareholder weighted voting rights, the power to appoint a majority of directors, or a veto over key decisions. Control held through a parent or holding company also counts.
What Control Means for a Partnership
The partnership test is arithmetic. A person controls a partnership if they hold the right to a share of more than half the assets, or more than half the income, of the partnership.1Legislation.gov.uk. Corporation Tax Act 2010 – 1124 “Control”
There is no equivalent of the company “wishes” route. Either entitlement exceeds 50 percent or it does not. Partners assessing their position should calculate carefully, because a small movement across the halfway mark changes the answer.
Voting Power Beats Beneficial Ownership: The Bibby Rule
The leading authority on how voting control is measured is IRC v J Bibby & Sons Ltd. Directors held shares as trustees, and the question was whether those trustee-held shares counted toward a controlling interest. The House of Lords held that they did. A vote validly cast at a general meeting binds the company, whether the voter holds the shares beneficially or in a fiduciary capacity.2vLex United Kingdom. Commissioners of Inland Revenue v J Bibby and Sons Ltd
The practical effect is that voting power on the register is what matters, not the economic interest behind it. Shares sitting in a trust or nominee arrangement are counted toward the person who can vote them, even if dividends flow elsewhere.
Where Section 1124 Applies, and Where It Does Not
Subsection (1) contains an important limit. The definition takes effect only “for the purposes of the provisions of the Corporation Tax Acts which apply this section.”1Legislation.gov.uk. Corporation Tax Act 2010 – 1124 “Control” It is not a universal definition of control across the whole tax code. Another provision has to cross-refer to it before it bites.
The most significant cross-reference is in the transfer pricing rules. Section 217 of the Taxation (International and Other Provisions) Act 2010 directs that references to a person controlling a body corporate or firm in Part 4 of that Act are read in accordance with section 1124 of CTA 2010.3Legislation.gov.uk. Taxation (International and Other Provisions) Act 2010 Part 4 When HMRC tests whether two parties to a related-party transaction are connected for transfer pricing, s.1124 is the yardstick. Getting the analysis wrong can lead HMRC to substitute arm’s-length prices and assess additional tax.
A frequent mistake is to reach for s.1124 when working out associated companies. The rules that divide the small profits rate threshold (£50,000) and the main rate threshold (£250,000) between related companies use a different definition, in section 450 of CTA 2010.4GOV.UK. Corporation Tax Rates and Allowances Section 450 has its own tests, wider in some respects than s.1124. Before relying on any control definition, check which section the relevant provision actually cross-references.
What Happens if You Get It Wrong
An incorrect assessment of control can produce an inaccurate return, which exposes the company to penalties under Schedule 24 of the Finance Act 2007. The maximum penalty depends on how the error arose:5Legislation.gov.uk. Finance Act 2007 Schedule 24
- Careless inaccuracy: up to 30 percent of the potential lost revenue.
- Deliberate but not concealed: up to 70 percent.
- Deliberate and concealed: up to 100 percent.
Disclosure reduces those maximums. An unprompted disclosure of a careless error can bring the penalty to zero. For a deliberate error, unprompted disclosure lowers the floor to 20 percent, and for deliberate and concealed errors, to 30 percent. If HMRC prompts the disclosure, the minimums are higher: 15 percent for careless, 35 percent for deliberate, and 50 percent for deliberate and concealed.5Legislation.gov.uk. Finance Act 2007 Schedule 24
The gap between an unprompted correction and one made after HMRC opens an enquiry is large. A careless mistake corrected early may cost nothing; the same mistake found by HMRC starts at 15 percent of the tax at stake. Keeping a contemporaneous record of how control was assessed at the time of filing is the best protection if the position is later questioned.