Associated companies: check your Corporation Tax thresholds

In short: The £50,000 lower and £250,000 upper Corporation Tax limits are shared between associated companies. In a full 12-month period, divide each limit by the number of associated companies, counting your own: with one other associated company, they fall to £25,000 and £125,000. Short accounting periods reduce them further. Broadly, companies are associated where one controls the other or both are under the same control (Corporation Tax Act 2010, section 18E).

The familiar £50,000 and £250,000 limits are not universal allowances for every company. They are reduced where the associated-company rules apply, and for short accounting periods. Check those inputs before treating a profit below £50,000 as automatically eligible for the small profits rate. HMRC's marginal-relief guidance explains the adjustment, and our Corporation Tax rates and marginal relief guide works through an example.

The risk is easy to miss when each company's bookkeeping is tidy and kept separately. Separate accounts do not necessarily mean separate tax thresholds.

What makes companies associated?

Broadly, companies are associated if one controls the other or both are controlled by the same person or persons. An overseas company can count, and an association during only part of an accounting period can matter. HMRC also describes circumstances in which a company that has carried on no trade or business is disregarded. Read HMRC's associated-company definition.

That is a starting point, not a complete ownership test. Do not decide the answer solely from matching director names, a trading label or the word "dormant" in a bookkeeping file.

How much do associated companies reduce the thresholds?

In a full 12-month period, the limits are divided by the number of associated companies including your own: one other associated company turns £50,000 into £25,000 and £250,000 into £125,000. Short accounting periods reduce the limits further, so check the length of the period as well as the count.

Illustration: assume Company A has one other associated company throughout a full 12-month accounting period. Assume both count under the rules and no other adjustment is needed.

The adjusted limits are 50,000 / 2 and 250,000 / 2. The divisor includes Company A itself as well as the other company. These whole-pound calculations need no rounding.

If Company A has £40,000 of relevant profits, those profits sit above the adjusted lower limit. That changes the rate analysis. It does not mean the company pays an extra tax simply for having a related company, nor does this table calculate the final bill.

Keep the distinction clear: first establish the companies that count, then the limits, then the correct profit inputs and relief calculation.

What information do you need to count associated companies?

Before calculating, gather a one-page control map: every potentially relevant company, its shareholders and voting arrangements, whether it traded, and why it is counted or excluded. Include the before and after positions if ownership changed during the year, because a snapshot taken only at year end can conceal a relevant earlier association. For each company, record:

• Legal name and country of incorporation.
• Shareholders and their rights, including changes during the period.
• Voting arrangements or other agreements affecting control.
• Whether it carried on a trade or business, with supporting dates.
• The reason it has been included or excluded from your count.

This is a fact-gathering checklist, not a substitute for the statutory control rules. Its purpose is to give you the information needed to reach and document a conclusion.

Which assumptions need special attention?

Watch short accounting periods, which need their own limit adjustment; marginal-relief eligibility restrictions; and distributions from other companies, which can affect the relevant profit test. An ordinary trading example should not be copied into a close investment-holding-company case. HMRC lists key exclusions and adjustments.

Treat a calculator's associated-company field carefully. Some ask for the other associated companies; others ask for a total. Read the label and supporting notes before entering a number. A one-company difference changes the result.

Next step: confirm the count and profit inputs, then use Taxley's Corporation Tax calculator as an estimate and cross-check. Keep the control assessment with the computation. Before paying for a filing, you can also take the 30-second check to see whether Taxley fits your company.

Frequently asked questions

Does a company outside the UK automatically stay out of the count?

No. HMRC's definition can include non-UK companies, so residence alone is not the answer. Broadly, what matters is control: companies are associated if one controls the other or both are controlled by the same person or persons (HMRC Company Taxation Manual CTM03940).

Can software determine control from the company name?

Do not assume it can. The relevant facts may include shareholder rights, voting arrangements and other agreements that are not apparent from a name or basic public record. Matching director names, or the word "dormant" in a bookkeeping file, does not settle the answer either.

Does a dormant company count as an associated company?

Not automatically either way. HMRC describes circumstances in which a company that has carried on no trade or business is disregarded, but a "dormant" label in the books does not decide it. Record whether each company traded, with supporting dates (HMRC Company Taxation Manual CTM03940).

Does a company associated for only part of the year count?

It can. HMRC's definition means an association during only part of an accounting period can matter, so a snapshot taken only at year end can conceal a relevant earlier association. Record the before and after positions whenever ownership changed during the period (HMRC Company Taxation Manual CTM03940).

Should I enter the total number of companies in a calculator?

Read the label first. Some calculators ask for the other associated companies; others ask for a total that includes your own company. A one-company difference changes the result: with one other associated company in a full year, the lower limit is £25,000, not £50,000.

General information, not personalised tax or accounting advice.