Associated Companies

Key facts

Two companies are associated if one controls the other, or both are controlled by the same person or group of persons.
The £50,000 small profits threshold and £250,000 upper limit are divided equally by the number of associated companies.
The £1.5 million quarterly instalment payments threshold is also divided by associated companies.
Dormant companies are excluded from the count.
The associated companies rules replaced the old “associated companies” test (which used 51% subsidiaries) from 1 April 2023.

How Associated Company Rules Affect Your Tax Rate

Two companies are associated for Corporation Tax purposes if, at any time during the accounting period:^[1]

One company has control of the other, or
Both companies are under the control of the same person or group of persons

“Control” means holding or being entitled to acquire more than 50% of the share capital, voting power, or rights to income or assets on a winding up.^[1]

This definition was introduced from 1 April 2023 and replaced the previous “associated companies” test (which focused on 51% subsidiaries and common control through a company structure). The new rules also look at individual shareholders and their associates (such as spouses, civil partners, minor children, and business partners).

Why It Matters

The number of associated companies determines the thresholds for three key purposes:^[2]^[3]

Threshold	Standard Amount	Divided By	Example (3 associated companies)
Small profits rate lower limit	£50,000	Number of associated companies	£16,667
Small profits rate upper limit	£250,000	Number of associated companies	£83,333
QIP threshold	£1,500,000	Number of associated companies	£500,000

The more associated companies you have, the lower each threshold becomes — meaning a company may pay Corporation Tax at 25% (rather than 19%) on profits that would otherwise fall below the upper limit. The number of associated companies is declared on the CT600, and Corporation Tax software adjusts the thresholds accordingly.

Example: Mr Smith owns 100% of Smith Trading Ltd and 100% of Smith Property Ltd. Both are associated companies. The small profits lower limit becomes £50,000 ÷ 2 = £25,000 each. Smith Trading Ltd’s profits of £40,000 now fall in the marginal relief band, not the small profits rate band.^[1]

The Control Test in Detail

Control is determined by reference to:^[1]

Share capital — holding more than 50% of the ordinary share capital
Voting power — controlling more than 50% of votes at a general meeting
Income rights — entitlement to more than 50% of distributable income
Asset rights — entitlement to more than 50% of assets on a winding up

If any one of these tests is met, the company is controlled.

Rights of associates are attributed to the person. Associates include:

Spouse or civil partner
Minor children (under 18)
Business partners in a partnership
Trustees of a settlement where the person is a settlor

Dormant Companies Are Excluded

A company that is dormant — meaning it has had no significant accounting transactions during the period — is not counted as an associated company for threshold purposes.^[1]

This prevents holding companies or shelf companies with no activity from unnecessarily reducing the thresholds of active trading companies.

Tip: If you control multiple companies and some are genuinely dormant, make sure they are formally treated as dormant at Companies House and with HMRC. This preserves the full thresholds for your active companies.

Practical Implications

The associated companies rules have several practical consequences:^[1]^[4]

Marginal relief: More associated companies means lower thresholds, so profits that would be taxed at 19% may instead fall in the marginal relief band (effective rate between 19% and 25%)
Quarterly instalments: The £1.5 million QIP threshold is also divided, so companies in a group may need to pay by instalments even with modest profits
Year-end planning: The number of associated companies is counted at the end of the previous accounting period for QIP purposes, but at any time during the current period for rate thresholds
Multiple shareholdings: Where individuals hold shares in several companies, the attribution rules can create unexpected associations

Frequently Asked Questions

What makes two companies associated for Corporation Tax?

Two companies are associated if one controls the other, or both are controlled by the same person or group of persons. Control means holding more than 50% of the share capital, voting power, or rights to income or assets.

How do associated companies affect Corporation Tax rates?

The £50,000 small profits threshold and £250,000 upper limit are divided equally by the number of associated companies. This can push a company into a higher rate band even with modest profits.

Are dormant companies counted as associated companies?

No. Dormant companies with no significant accounting transactions are excluded from the associated companies count, preserving the full thresholds for active trading companies.

Do spouse’s shareholdings count for the associated companies test?

Yes. The rights of associates — including a spouse, civil partner, minor children, and business partners — are attributed to the person when determining whether companies are associated.

Sources

Associated companies — GOV.UK
Corporation Tax rates and reliefs — GOV.UK
Corporation Tax: quarterly instalment payments — GOV.UK
Corporation Tax rates — GOV.UK