What are Associated Companies?
Two or more companies are associated for Corporation Tax purposes when one has control of the other, or when both are under the control of the same person or group of persons. Associated companies matter because the £50,000 and £250,000 Corporation Tax thresholds are divided between all associated companies, rather than each company getting the full thresholds on its own.
How the rules work in practice
If a company has one associated company, the small profits rate threshold of £50,000 and the main rate threshold of £250,000 are each divided by two, so the thresholds effectively become £25,000 and £125,000. With three associated companies, the thresholds are divided by four. Control is generally based on share ownership, voting rights, or entitlement to assets on a winding up, and HMRC looks at the substance of who controls a company rather than just its formal structure.
Why this catches business owners out
Many directors run more than one limited company without realising the businesses count as associated, particularly where a spouse or family member owns a separate company and HMRC treats the two as connected through shared control. This can significantly reduce the tax bands available and push a company into paying tax at a higher effective rate sooner than expected, so it is worth reviewing group and family shareholdings when planning Corporation Tax.
Related terms: Corporation Tax, Corporation Tax Rate, Marginal Relief, CT600.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.