How do associated companies change my Corporation Tax?

They shrink the two figures that set your rate. The £50,000 and £250,000 limits are shared out between the companies under the same control, so the higher rate can start on a smaller profit than you'd expect.

If I own two companies, what are my tax bands?

The limits split in half: £25,000 instead of £50,000, and £125,000 instead of £250,000, for each company. With three companies they'd split three ways.

Does my company count itself in the total?

Yes. The count includes your own company plus its associates. Two companies under the same control means dividing the limits by two, not by one.

My other company is dormant. Does it still count?

No. A dormant company, or one that does no business at all in the year, is left out of the count, so it won't shrink your bands.

Two of my companies do totally different things. Are they still associated?

They can be. What matters is who controls them, not what they do. If the same people are in charge of both, they usually count, and we work that out with you.

Associated companies | Simple Returns

Q: What's an associated company in plain English?

Another company that's under the same control as yours, the same person or the same group of people is in charge of both. They don't have to be in the same line of work or look connected.

How does my Corporation Tax rate normally work?

Most small companies pay 19% Corporation Tax on a profit of £50,000 or less. Profit over £250,000 is taxed at 25%. A profit between those two figures pays a rate in between, climbing gradually from 19% toward 25%. Those two numbers, £50,000 and £250,000, are the limits that decide which rate you pay.

For a company on its own, those limits are the full £50,000 and £250,000. The catch is that they aren't always the full amounts. If you control more than one company, they get smaller.

What is an "associated company"?

It's another company that's under the same control as yours. In plain terms: the same person, or the same group of people, is in charge of both. That can be you owning two companies, or you and a business partner owning a share of several.

This follows the people in control, not whether the companies look connected. Two companies in completely different lines of work, with different names and different customers, still count as associated if the same people control them both. You don't have to decide this yourself, we ask you a simple question about it and work the rest out.

How do associated companies change my tax bands?

When more than one company is under the same control, the £50,000 and £250,000 limits are divided between them. The more companies under that control, the smaller each company's share.

Your company on its own: the full £50,000 and £250,000.
Your company plus one other: the limits are halved, to £25,000 and £125,000 each.
Your company plus two others: each gets a third, £16,667 and about £83,333.

So the count includes your own company, not only the others. Two companies under the same control share the limits two ways; three companies share them three ways.

A smaller upper limit is the part that costs money. Once your profit passes the divided upper figure, the higher rate starts to bite, and that figure can now be a lot lower than the £250,000 you'd expect.

A real example: two companies, one owner

Say you own and run two companies, and one of them made £100,000 profit this year.

For example

On its own, that company would compare its £100,000 profit against the full £250,000 upper limit. Sitting between £50,000 and £250,000, it would pay the in-between rate, working out at an effective rate of about 22.75%, or roughly £22,750 in tax.

But you control two companies, so the limits split in half. This company's upper limit drops from £250,000 to £125,000, and its lower limit drops from £50,000 to £25,000. Its £100,000 profit is now compared against those smaller figures. It still sits in the in-between band, but much higher up it, closer to the top, so the effective rate climbs and the tax goes up.

The profit didn't change. The owner didn't change. The bands shrank, because a second company shares them. That's the whole effect of associated companies in one sentence.

Which companies don't count?

Not every company you're connected to is counted. The main ones left out:

Dormant companies. A company that isn't trading and has no activity in the year isn't counted.
Companies that do no business at all during the year, even if they exist on paper.

A company that just holds something and carries on no trade or business of its own can also fall outside the count, but that one depends on what it does, so it's a case we check rather than assume.

If you have an old company sitting dormant, that's good news: it usually won't shrink your bands. We ask you about each company so the dormant ones drop out of the count.

So what do I have to do?

Tell us how many other companies share your control. Most one-company owners answer none, and nothing changes. If you do control others, we take that count, leave out the dormant ones, divide the £50,000 and £250,000 limits the right way, and apply the correct rate to your profit. You see every figure before anything is sent.

Working out whether a company counts as associated, and how the limits split, is one of the easier things to get wrong by hand, so we don't ask you to do the sum. If your setup is a group of companies, or ownership is shared in a complicated way, an accountant may be the better fit, and that's an honest call to make.

General guidance, not advice. This guide explains how the rules generally work for small UK limited companies. It isn't tax advice for your specific situation, if you're unsure, check with us or an accountant.

Associated companies: how they change your tax bands