Associated companies in one paragraph: if you control two or more UK companies (or are connected to people who do), the £50,000 small-profits limit and £250,000 marginal-relief upper limit are divided between them. Two associated companies each have a £25,000 SP limit and £125,000 marginal-relief upper limit. This can mean profits taxed at the marginal 26.5% rate when each company alone would have been at 19%. The April 2023 reforms greatly expanded the practical relevance of association.
Why association matters now (post-April 2023)
Pre-April 2023, corporation tax was a flat 19% — association barely mattered. Since April 2023, the bands are:
- £0 - £50,000 profit: 19% small-profits rate
- £50,001 - £250,000: 25% with marginal relief (effective marginal rate 26.5%)
- £250,001+: 25% main rate
With two associated companies, each gets only £25,000 small-profits limit and £125,000 upper limit. So a company with profits of £40,000 would jump from 19% (single company) to 26.5% marginal rate (one of two associated). That's a £3,000+ annual difference.
What counts as "associated"?
Two companies are associated for CT purposes if one is under the control of the other, or both are under the control of the same person or persons. Control means:
- Owning more than 50% of the share capital, OR
- Holding voting rights giving more than 50% control, OR
- Having rights to more than 50% of distributions, OR
- Other rights/powers that constitute de facto control
"Connected persons" can be aggregated for control purposes: spouse/civil partner, child, parent, sibling, business partners. If you and your spouse each own 50% of two different companies, those companies are associated.
What does NOT cause association
- Dormant companies. Excluded entirely — a dormant shelf company doesn't count.
- Companies not throughout the accounting period. Association is tested per period.
- Non-trading holding companies in some cases. Specific carve-outs apply to pure holding companies whose only activity is investing in trading subs.
- Companies controlled by non-residents (specific tests).
- Bare nominee shareholdings. Shares held by a nominee for someone else are attributed to the beneficial owner.
The "common scenarios" that catch directors
1. Spouse-controlled companies
You own 100% of TradingCo. Your spouse owns 100% of SeparateCo. Because spouses are connected persons, the two companies are associated. Each gets half the CT limits.
2. Property and trading companies under same owner
You own 100% of TradingCo (a consultancy) and 100% of PropertyCo (residential BTL). Both are associated. Property profits taxed at potentially marginal-rate even though small.
3. Group with multiple subsidiaries
HoldCo owns 100% of three trading subs (A, B, C). Four associated companies. Each gets one-quarter of the CT limits. A subsidiary with £40,000 profit is now in marginal-relief territory rather than at small-profits rate.
4. Joint ventures
You own 60% of CompanyA and 60% of CompanyB. You control both. Both are associated. The 40% minority shareholders are irrelevant.
5. Family companies
Mum owns CompanyMum. Adult child owns CompanyChild. They are not associated unless one has rights over the other's company (e.g., loans, options). Adult children are NOT connected persons for CT association purposes (unlike for IHT and certain other taxes).
Worked example: two companies, mid-range profit
You own 100% of TradingCo (profit £80,000) and 100% of PropertyCo (profit £30,000). Both companies share CT limits.
Each company's adjusted limits:
- Small-profits limit: £50,000 / 2 = £25,000
- Upper limit: £250,000 / 2 = £125,000
TradingCo CT:
- Profit £80,000. Above SP limit, below upper. Marginal relief applies.
- CT at 25% on £80,000 = £20,000
- Less marginal relief: (£125,000 − £80,000) × 3/200 (the marginal-relief fraction) = £675
- Net CT: £19,325 (effective rate 24.2%)
PropertyCo CT:
- Profit £30,000. Above SP limit of £25,000, below upper. Marginal relief applies.
- CT at 25% on £30,000 = £7,500
- Less marginal relief: (£125,000 − £30,000) × 3/200 = £1,425
- Net CT: £6,075 (effective rate 20.3%)
If the two companies hadn't been associated:
- TradingCo: same as above (£80,000 in marginal range) but with full £50,000 SP and £250,000 upper limit — CT = £14,150 (effective 17.7%)
- PropertyCo: £30,000 fully within £50,000 SP limit, CT at 19% = £5,700
Cost of being associated: £5,550 extra CT (£19,325 + £6,075 vs £14,150 + £5,700).
Planning around association
- Spouse exemption disappeared in 2011. Old planning of putting one company in each spouse's name no longer avoids association.
- Family investment companies (FICs) create association with the founder's other businesses. Plan total CT cost when designing the structure.
- Consolidate where possible. If running two related companies, consider merging into one. Lose the small-profits-limit sharing.
- Move to adult children if family planning aligns. Children's companies are not associated with parents'.
- Use a holding company structure. A pure holding company with active subs may avoid being counted, depending on the activity test. Get specialist advice.
- Be aware that dormant companies don't count. If you have shelf companies for branding, ensure they're truly dormant if you don't want them associated.
Tax pool / extended accounting periods
Two further wrinkles:
- If a company's accounting period is less than 12 months, the limits are pro-rated.
- Associated companies must each apply the limits to their own period — you can't aggregate.
- If a company is associated for part of the period (e.g., acquired mid-year), it's still associated for the whole period.
Common association mistakes
- Forgetting spouse-controlled companies. Spouse association catches many "I'll put it in her name" arrangements.
- Counting dormant companies. Dormant companies don't count — if you have several inactive companies, they don't dilute your CT limits.
- Treating non-trading holding cos as automatically excluded. Only specific carve-outs apply; most holding companies count.
- Underestimating the financial impact. Several thousand pounds per year for small-to-mid companies in the marginal-relief band.
- Ignoring company restructuring as a planning tool. Merging two associated companies into one removes association entirely.
Sources
Related content for Ltd company directors
- Salary vs dividend calculator
- Dividend tax calculator
- Director's loan accounts (DLA)
- Close investment companies
- Associated companies and CT bands
- Optimal extraction by profit level
- Employer pension contributions
- Closing a company: strike-off vs MVL
- Business Asset Disposal Relief
- Dividend waivers and settlements
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