Associated companies
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
How it works
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.
Worked example (2026/27)
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.
Who this affects
- Directors running a trading company and a property company alongside each other
- Spouses each owning a company where the businesses share premises, staff or finance
- Groups with a trading subsidiary and an active holding company
- Anyone who set up a second company midway through a year and expected the old limits to hold
Common mistakes
- Counting only companies you personally own and ignoring a spouse's company
- Assuming a company that traded for two months of the year does not count
- Treating an active holding company as automatically excluded
Frequently asked questions
How do associated companies affect corporation tax?
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%.
Does my spouse's company count?
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.
Are dormant companies associated?
No. A company that is dormant throughout the period is ignored, as are certain passive holding companies.
What if the association only lasted part of the year?
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.
Related terms
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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