Key takeaways
- The £50,000 small profits limit and £250,000 main rate limit are divided by the number of associated companies plus one.
- Companies are associated if one controls the other, or both are under the control of the same person or group of persons.
- Dormant companies and most passive holding companies are ignored when counting.
- Relatives' and business partners' holdings are only attributed where there is substantial commercial interdependence between the companies.
- The same count also divides the £1.5 million threshold for quarterly instalment payments.
Since April 2023, Corporation Tax has had two rates: 19% for small profits and 25% for profits above £250,000, with marginal relief in between. To stop owners splitting a business across several companies to keep each under the limits, the limits are shared between associated companies.
Why associated companies matter
| One company | With associated companies | |
|---|---|---|
| Lower limit (19% applies up to) | £50,000 | £50,000 ÷ (associates + 1) |
| Upper limit (25% applies above) | £250,000 | £250,000 ÷ (associates + 1) |
| Quarterly instalments threshold | £1.5 million | £1.5 million ÷ (associates + 1) |
Limits are also reduced for accounting periods shorter than 12 months.
Example
Liam owns two trading companies outright. Each has profits of £60,000.
| Not associated | Associated (two companies) | |
|---|---|---|
| Lower limit per company | £50,000 | £25,000 |
| Upper limit per company | £250,000 | £125,000 |
| Rate position | Marginal relief band | Marginal relief band, but further up it |
| Corporation Tax per company | £12,150 | £14,025 |
Because the companies are associated, each one pays £1,875 more. Without association, marginal relief is £2,850 (3/200 × (£250,000 − £60,000)); with it, only £975 (3/200 × (£125,000 − £60,000)). Use our Corporation Tax calculator to check figures for your own companies.
The control test
Two companies are associated with each other at any time in an accounting period if:
- one has control of the other, or
- both are under the control of the same person or persons
“Control” broadly means the ability to direct the company’s affairs, for example by holding more than half the share capital, voting power, or rights to income or assets on a winding up. Companies count if they were associated at any time during the accounting period, even briefly, and wherever in the world they are resident.
Companies that are ignored
- Dormant companies, which carried on no trade or business at any time in the accounting period.
- Passive holding companies: companies with no trade, which only hold shares in their 51% subsidiaries, have no assets other than those shares, and receive only dividends that they pay out to their shareholders.
Relatives and business partners
When working out whether one person controls two companies, the rights of their associates, such as a spouse, relatives or business partners, can be added to their own. Since 1 April 2023 those rights are only attributed if there is substantial commercial interdependence between the companies, judged by:
- financial links, such as one company financially supporting the other
- economic links, such as serving the same customers or pursuing the same economic objective
- organisational links, such as common management, employees, premises or equipment
So two genuinely separate businesses run by a husband and wife are not usually associated, while two companies sharing an office, staff and customers probably are.
Groups
Members of a group under common control are associated. A parent with three trading subsidiaries has four associated companies, so each has limits of £12,500 and £62,500 (£50,000 and £250,000 divided by four). Dividends between group companies do not count as profits for the rate calculation.
Practical points
- Count carefully at the year end, including companies formed, sold or made dormant during the period.
- Dormant shell companies do not count, but a company with even small investment income may.
- Consider structure before forming extra companies: the tax saving from separate companies is often smaller than expected once association applies.
Frequently asked questions
What are associated companies for Corporation Tax?
Companies where one controls the other, or both are controlled by the same person or persons, at any time in the accounting period.
How do associated companies affect the Corporation Tax rate?
The £50,000 and £250,000 limits for the small profits rate and marginal relief are divided by the number of associated companies plus one.
Do dormant companies count as associated companies?
No. Companies that are dormant throughout the accounting period are ignored, as are qualifying passive holding companies.
Are my spouse’s companies associated with mine?
Only if there is substantial commercial interdependence between the companies, such as shared customers, staff, premises or financial support.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.