Associated companies and the corporation tax limits

Why the count matters

For the financial year beginning 1 April 2026 the small profits rate is 19% on profits up to £50,000 and the main rate is 25% on profits over £250,000, with marginal relief between (GOV.UK: Corporation Tax rates and allowances). HMRC's marginal relief guidance says the limits are divided by the number of associated companies plus the company itself. With 3 other associated companies the limits are divided by 4, giving a lower limit of £12,500 and an upper limit of £62,500.

The same count also changes when a company has to pay by quarterly instalments. See corporation tax payment dates and interest.

The control test

Section 18E of the Corporation Tax Act 2010 says a company is an associated company of another at any time when one of the two has control of the other, or both are under the control of the same person or persons (CTA 2010 s18E). Control has the meaning in sections 450 and 451, the close company rules.

A company counts if it is associated at any time in the accounting period, even for part of it, and it does not matter where the other company is resident (HMRC manual CTM03940).

Under section 451, a person is treated as holding the rights of their associates as well as their own. For this test, section 18G switches that off when the relationship between the two companies is not one of substantial commercial interdependence (CTA 2010 s18G). Two companies owned separately by a husband and wife, with no business link between them, are therefore not associated through the family relationship alone.

Substantial commercial interdependence

• The factors are in regulations, SI 2022/1203, and look at the financial, economic and organisational links between the companies (HMRC manual CTM03950).
• Not all three links are needed. HMRC's manual says a sufficient financial link alone makes the companies associated, even with no economic or organisational link (CTM03950).
• The test applies only to rights attributed from associates. Rights a person holds directly, or through nominees, always count (CTM03950).

Companies that are ignored

• A company that carried on no trade or business at any time in the accounting period, or was associated only for part of the period and carried on no trade or business in that part (CTA 2010 s18E(3)). A dormant company falls here.
• A passive holding company. Under section 18F, a company that carries on a business of making investments is treated as carrying on no business if, throughout the period, it carries on no trade, has one or more 51% subsidiaries and is a passive company.
• A company is passive when its only assets are shares in its 51% subsidiaries, its only income is dividends from them which it passes on in full to its own shareholders, and it has no chargeable gains, no management expenses and no qualifying charitable donations for the period (CTA 2010 s18F; CTM03945).

Counting a client's associated companies

1. List who controls the company

   Note each person or group of persons with control under sections 450 and 451, using shares, votes and rights to assets on a winding up (CTA 2010 s18E).

2. List the other companies they control

   Include companies controlled by the client company and companies controlled by the same person or persons, at any time in the period.

3. Look at relatives' and partners' companies

   Count a company controlled through an associate's rights only if there is substantial commercial interdependence (CTA 2010 s18G).

4. Strike out the ignored companies

   Remove companies with no trade or business in the period and passive holding companies (CTA 2010 s18F).

5. Divide the limits

   Divide £50,000 and £250,000 by the number left plus one, and reduce them again for an accounting period shorter than 12 months (GOV.UK: marginal relief).

Worked example

For example, Alpha Ltd makes taxable profits of £120,000 in the year to 31 March 2027 and has no dividend income. Its director also controls Beta Ltd, which trades. Alpha has one associated company, so its limits are £25,000 and £125,000.

Marginal relief is worked out under section 18B as the standard fraction multiplied by the upper limit less profits. The fraction is 3/200 (GOV.UK: rates and allowances). With no dividend income, relief is £5,000 × 3/200 = £75, and tax is £30,000 less £75, which is £29,925.

If Beta Ltd had been dormant all year, Alpha would have no associated company. Relief would be £130,000 × 3/200 = £1,950 and tax £28,050.

Periods that span 1 April

An accounting period that falls into two financial years is split into two notional periods, each with its own limits. An associated company that exists only in one part reduces the limits only for that part (HMRC manual CTM03955). The rates and fraction for 2026 to 2027 are in corporation tax rates and marginal relief for 2026 to 2027.