Guide
Associated companies and Corporation Tax
How associated companies rules affect your Corporation Tax rate thresholds and quarterly instalment obligations.
What are associated companies
Two companies are associated if one controls the other, or both are under the control of the same person or persons. The associated companies rules were reintroduced from 1 April 2023 alongside the new Corporation Tax rate structure.
Associated companies share the Corporation Tax thresholds. This determines whether you pay the small profits rate (19%), the main rate (25%), or benefit from marginal relief.
The control test
A person controls a company if they hold or are entitled to acquire:
- More than 50% of the share capital or issued share capital
- More than 50% of the voting power
- Rights to more than 50% of distributable income or assets on a winding up
Attribution rules: The rights of a person's associates (spouse, civil partner, minor children, business partners, and certain trustees) are attributed to them when testing control. This means a husband and wife each owning separate companies will typically have associated companies.
How thresholds are shared
The small profits threshold (normally £50,000) and the upper limit (normally £250,000) are divided equally by 1 plus the number of associated companies.
- 1 company (no associates)
- Small profits: £50,000 | Upper limit: £250,000
- 2 associated companies
- Small profits: £25,000 each | Upper limit: £125,000 each
- 3 associated companies
- Small profits: £16,667 each | Upper limit: £83,333 each
- 5 associated companies
- Small profits: £10,000 each | Upper limit: £50,000 each
Common scenarios
Husband and wife companies
A director owns Company A and their spouse owns Company B. Due to spousal attribution, these are associated companies. Each company's small profits threshold is £25,000 instead of £50,000.
Trading company plus property company
A director owns both a trading company and a property company. Both are associated. The thresholds are halved for each company.
Dormant companies
Dormant companies are excluded from the count if they have not carried on a trade or business at any time during the accounting period. A dormant holding company is not automatically excluded.
Quarterly instalment impact
Associated companies also affect the quarterly instalment threshold. The £1.5 million threshold is divided by 1 plus the number of associated companies. With 2 associated companies, the threshold drops to £750,000 each, meaning companies with moderate profits may need to pay Corporation Tax in quarterly instalments.