Associated Companies and Corporation Tax: UK Rules, Rates and Examples for 2026/27

How Associated Companies Affect Corporation Tax Rates in 2026/27

For 2026/27, the main corporation tax bands for a single company remain:

These limits apply before any reduction for associated companies.

If your company has associated companies, you divide the £50,000 lower limit and £250,000 upper limit by the total number of associated companies, including the company being assessed.

Corporation Tax Thresholds With Associated Companies

This is where many directors get caught.

A company with £120,000 profit may look as if it sits comfortably inside the marginal relief band. But if there are two associated companies in total, the upper limit falls to £125,000. That company moves much closer to the 25% main rate.

Marginal Relief and Associated Companies

Marginal relief applies when company profits sit between the lower and upper limits.

For a single company, this means profits between £50,000 and £250,000.

When companies are associated, the limits reduce first. You then apply marginal relief using the reduced limits.

The standard marginal relief formula is:

Marginal relief = (upper limit − augmented profits) × (taxable profits ÷ augmented profits) × 3/200

For many small owner-managed companies, taxable profits and augmented profits may be the same. If your company has distributions or other relevant income, the calculation may need closer review.

Practical Examples of Associated Companies and Corporation Tax

Example 1: One Company With Profits Below £50,000

A consultancy company makes £45,000 profit.

The owner controls no other companies, and there are no associated companies.

The company stays below the £50,000 lower limit, so it pays corporation tax at 19%.

Corporation tax due: £8,550

Example 2: Two Associated Companies

A director owns two trading companies.

One company makes £120,000 profit. Because there are two associated companies in total, the lower and upper limits reduce to:

• Lower limit: £25,000
• Upper limit: £125,000

The £120,000 profit falls inside the marginal relief band, but only just.

The calculation works as follows:

• Tax at 25%: £30,000
• Marginal relief: £75
• Corporation tax due: £29,925

If the company had no associated company, the marginal relief would be much higher, and the corporation tax bill would be £28,050.

In this example, associated company status costs an extra £1,875.

Example 3: A Dormant Company Does Not Count

A business owner controls one trading company and one dormant company.

The trading company makes £45,000 profit. The second company remains dormant for the full accounting period.

Because the dormant company does not count, the trading company keeps the full £50,000 lower limit.

The company pays corporation tax at 19%.

Corporation tax due: £8,550

If the second company had traded during the year, the lower limit could have fallen to £25,000. The trading company would then move into the marginal relief band, and the tax bill would rise.

Other Tax Areas Affected by Associated Companies

Associated company rules can affect more than the headline corporation tax rate.

Annual Investment Allowance

Companies under common control may need to share one Annual Investment Allowance.

The current AIA limit is £1 million. If related companies plan to buy plant, machinery, vans, tools, or other qualifying assets, timing matters.

Without planning, one company may use the allowance and leave less available for another company in the same control group.

Quarterly Instalment Payments

Large companies may need to pay corporation tax by quarterly instalments.

The usual thresholds can reduce when companies are associated. This means a company can move into the quarterly payment rules sooner than expected.

Directors should check this before the year-end, not after the corporation tax return is due.

Capital Allowances

From April 2026, the main writing-down allowance for corporation tax falls to 14%.

This makes the timing of equipment purchases more important, especially for companies with several related businesses and shared investment plans.

Close Investment Holding Companies

Close investment holding companies do not qualify for the small profits rate. They usually pay the main rate instead.

If your company mainly holds investments, property, or passive assets, you should check the rules before assuming the 19% rate applies.

Common Edge Cases That Cause Problems

Foreign Companies

A foreign company can still count as associated if the same person controls it.

The company does not need to pay UK corporation tax for it to affect the associated company count.

Trusts and Nominee Shareholdings

Shares held through trusts or nominee arrangements can create control issues.

HMRC may look beyond the name on the share register and consider the real rights and powers behind the structure.

Mid-Year Company Purchases or Sales

A company can count as associated even if the connection only exists for part of the accounting period.

If you buy, sell, form, or close a company during the year, record the dates clearly.

Spouses and Adult Children

Spouse-owned companies and adult-child-owned companies can cause confusion.

The key question is not only family connection. You must also check whether the companies have real financial, economic, or organisational links.

Two unrelated trades run separately from different premises may not create the same risk as two companies sharing money, customers, staff, and systems.

Records You Should Keep for HMRC

Good records can protect your position if HMRC asks how you counted associated companies.

Keep clear notes showing:

• Direct and indirect share ownership
• Voting rights
• Rights to income and assets
• Shareholder agreements
• Board minutes
• Group structure charts
• Dormant company status
• Reasons for excluding any company from the count
• Notes on financial, economic, and organisational links
• Dates of any company purchase, sale, formation, or closure

You also need to report the number of associated companies correctly on the CT600 corporation tax return.

An incorrect number can lead to the wrong corporation tax thresholds, underpaid tax, interest, and penalties.

Sensible Tax Planning Without Creating HMRC Risk

You can plan around the associated company rules, but the planning must reflect real commercial reasons.

Sensible steps may include:

• Reviewing your group structure before the year-end
• Closing companies that no longer serve a purpose
• Keeping dormant companies clearly inactive
• Reviewing profit timing where commercially sensible
• Checking whether group relief can help within a true group
• Planning capital purchases across related companies
• Keeping separate records for companies that genuinely trade separately

What you should not do is create extra companies only to multiply the £50,000 and £250,000 thresholds.

HMRC can challenge artificial splitting. If the companies share control, money, customers, staff, premises, or systems, the rules may still bring them into the same count.

Quick Associated Company Checklist

Before filing your next corporation tax return, ask these questions:

• Do you control more than one company?
• Does your spouse, civil partner, sibling, parent, child, or trust control another company?
• Did any company trade at any point during the accounting period?
• Do the companies share money, loans, guarantees, or financial support?
• Do the companies share customers, suppliers, or business goals?
• Do the companies share staff, premises, management, equipment, or systems?
• Have you divided the £50,000 and £250,000 limits by the correct number of companies?
• Have you checked AIA, quarterly instalment, and relief rules?
• Have you recorded your reasoning before filing the CT600?

If any answer feels unclear, get advice before submitting the return.