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 associates such as a spouse or relative are attributed when testing control only in limited circumstances, including where the companies are substantially commercially interdependent through shared customers, premises, staff, equipment or financial support. Marriage alone does not make two otherwise unconnected companies associated.
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: £16,667 each | Upper limit: £83,333 each
- 3 associated companies
- Small profits: £12,500 each | Upper limit: £62,500 each
- 5 associated companies
- Small profits: £8,333 each | Upper limit: £41,667 each
Common scenarios
Husband and wife companies
A director owns Company A and their spouse owns Company B. The companies are not associated by marriage alone. Spousal attribution applies only where the businesses are substantially commercially interdependent, for example through shared customers, premises, staff, equipment or financial support.
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 £500,000 each, meaning companies with moderate profits may need to pay Corporation Tax in quarterly instalments.
Associated companies and Corporation Tax (opens in a new tab)
Legal basis
Primary legislation and key regulations