Two companies are associated for corporation tax when one controls the other, or both are under the control of the same person or connected persons. Each association divides the £50,000 and £250,000 profit limits, pushing more profit into the main rate.
Also known as: associated company rules
The small profits rate of 19% applies to profits up to £50,000, and marginal relief tapers away up to £250,000. Both limits are divided by the number of associated companies plus one. A director with two companies has limits of £50,000 ÷ 2 each; with three companies, a third each.
Control is about rights, not day-to-day involvement: share capital, voting power, entitlement to distributable income or to assets on a winding up. Rights held by associates — spouse, civil partner, children, parents, business partners — can be attributed to you where there is substantial commercial interdependence between the companies, meaning they share finance, economics or organisation.
Dormant companies are ignored, and so are passive holding companies that meet the conditions. Association is counted at any point in the accounting period, not just at the year end, so a company sold midway through the year still counts for that period.
This rule catches directors who set up a second company for a side project without realising the first company's tax bill will rise. Where two genuinely independent businesses exist, the answer is usually structure and evidence rather than hope; where they are interdependent, the tax cost needs building into the plan.
Two associated companies each making £60,000
| Small profits limit each | £25,000 |
|---|---|
| Upper limit each | £125,000 |
| Rate applied to each company | Main rate with marginal relief |
| Extra tax versus one standalone company | Several thousand pounds a year |
Illustrative. Your figures depend on profit levels, period length and the number of associations.
They divide the £50,000 and £250,000 profit limits by the number of companies, so more profit falls into the main rate of 25%.
It can. Rights of associates are attributed to you where there is substantial commercial interdependence — shared finance, customers, premises, staff or management — between the two companies.
No. A company that is dormant throughout the period is ignored, as are certain passive holding companies.
Association at any time in the accounting period counts for the whole period. Selling or dissolving a company mid-year does not restore the full limits for that year.
Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 21 October 2026 · Figures for 2026/27 · About our practice
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