If you have one associated company (i.e., two companies connected):

• Lower limit: £50,000 ÷ 2 = £25,000

• Upper limit: £250,000 ÷ 2 = £125,000

If you have three associated companies:

• Lower limit: £50,000 ÷ 4 = £12,500

• Upper limit: £250,000 ÷ 4 = £62,500

And so on. So the presence (and number) of associated companies dramatically affects how quickly you move into the main rate.

What counts as associated companies?

The rules for identifying associated companies are set out in the HM Revenue & Customs (HMRC) guidance and the Corporation Tax Act 2010.

A company is an associated company of another if at any time:

• one of the two companies controls the other; or

• both companies are under the control of the same person or persons.

“Control” is broadly defined and includes:

• the greater part of the share capital;

• the greater part of the voting rights;

• rights to the greater part of the income if all income were distributed;

• rights to the greater part of the assets on winding-up.

Importantly:

• The rules apply even if the association exists only part of the accounting period — the full period may need to treat them as associated.

• Some companies may be ignored (not counted) for the purposes of associated companies rules if they have not carried on a trade or business in the relevant period, or if they are dormant or passive holding companies.

Why the associated companies rule matters

Thresholds get smaller

Because the thresholds (£50k / £250k) are divided by the number of associated companies, having one or more associated companies can significantly reduce the profit band within which the small profits rate applies.

In practice, this means you may hit the 25 % rate much sooner than you expect.

Marginal relief zone

If profit falls between the adjusted lower and upper limits (after dividing by associated companies), you get marginal relief, which reduces the effective rate from 25 % to something lower.

But once profits exceed the upper limit, the full 25 % applies on all profits — and that calculation must use the smaller thresholds if associated companies apply.

Compliance risk

If you don’t identify your associated companies correctly, you may use incorrect thresholds and under-tax your profits which could lead to additional tax, interest and penalties.

Paying attention to whether you are part of a set of associated companies is therefore key.

Practical impacts for local businesses

If you run a company and either:

• operate more than one company; or

• have shareholdings or control over other companies (or your spouse/partner does);

then you may fall into being part of associated companies. Here are some practical examples:

• A director owns two separate trading companies; one has profits of £120,000 — if the second company is associated, the threshold for the small profits rate is halved, meaning very possibly you are already subject to the main 25 % rate rather than 19 %.

• A husband & wife each own separate companies — they may be treated as associated if control or common control applies or if commercial interdependence exists.

• A trading company and a property company owned by the same person may be associated, so thresholds must be divided accordingly.

In all these cases it’s essential to assess the association status, adjust the thresholds appropriately, and compute your tax liability accordingly.

Additional rule changes for 2025/26 you should note

• The corporation tax rates themselves remain unchanged for 2025/26: 19 % for small profits, 25 % for profits above the (adjusted) upper limit.

• The lower limit remains £50,000 and upper limit £250,000 for a single company with no associates; but if you have associated companies these limits are divided.

• Attendance to the rules around large company quarterly instalment payments (QIPs) now also reference the number of associated companies.

• The “effective tax rate” in the marginal relief band remains roughly 26.5 % for companies caught in that zone.

• Note also that companies which are close investment holding companies (CIHCs) cannot benefit from the small profits rate regardless of thresholds — meaning the associated companies rules are especially important to check if you have a holding structure.

How Trueman Brown can help you with associated companies

If you are unsure whether your company is affected by the associated companies rule, we at Trueman Brown can help you review your structure, calculate the correct thresholds and work out your tax liability.

Contact us at:

• Email: mark@truemanbrown.co.uk

• Phone: 01708 397262

We’ll assist you with:

• identifying whether you have any associated companies (and this includes connected persons, shareholdings, and common control)

• adjusting the lower and upper limits appropriately and applying marginal relief if required

• preparing accurate corporation tax returns and avoiding unpleasant surprises from HMRC

Don’t leave it to chance — the associated companies rule can have a real impact on your tax rate and payment obligations.

FAQ – Frequently asked questions

Q1: What exactly counts as a company being an “associated company”?
A: Two companies are associated if one controls the other, or both are under the control of the same person(s). Control is broadly defined and not just about shareholding percentage. Some non-trading companies may be ignored.

Q2: Do the thresholds (£50k / £250k) change if my accounting period is less than 12 months?
A: Yes — if your accounting period is less than 12 months, the lower and upper limits are proportionately reduced. And on top of that, the threshold reductions for any associated companies must also be applied.

Q3: If I have two companies but only one carries on a trade, do I still have to divide thresholds?
A: You may not need to count the non-trading company, if that company did not carry on a trade or business during the whole (or relevant part) of the accounting period. Dormant or passive holding companies may be ignored under certain conditions.

Q4: What happens if my profits fall between the (adjusted) lower and upper limits?
A: You’ll pay tax at the 25 % main rate, but receive marginal relief which reduces the effective rate between 19 % and 25 %. The calculation is complex and depends on the margin, your profits and your associated companies status.

Q5: If I only hold a small share in another company, does that count for associated company rules?
A: Yes — it isn’t just share percentage that matters. Rights to income, assets, voting power, entitlement to acquire, etc., are all relevant elements of “control”. Even indirect holdings could count under HMRC’s attribution rules.

Q6: Are the corporation tax rules for 2025/26 changing further?
A: Not for the basic small profits and main rate thresholds — they remain 19 % / 25 % for profits under/over the adjusted limits. However, keep an eye on other tax changes (capital allowances, investment reliefs, etc).

If you’d like to discuss your company’s position in light of the associated companies rule, please get in touch via mark@truemanbrown.co.uk or call 01708 397262.