Glossary · UK
What is Connected Companies?
Two or more companies are connected for Corporation Tax purposes if they are under common control (e.g. same owner). Connected companies share the Corporation Tax thresholds, meaning each company's profit limits are divided by the number of associated companies.
Full Definition
For Corporation Tax purposes, companies are associated (commonly called connected) if one controls the other, or both are under the control of the same person or persons. Control is defined broadly: a person controls a company if they hold more than 50% of the ordinary share capital, voting rights, or rights to income or capital on a winding-up. Where two companies are associated, HMRC divides the small profits rate threshold (£50,000) and the main rate threshold (£250,000) between them. With two associated companies, each company's thresholds become £25,000 and £125,000 respectively. With three associated companies, the thresholds become £16,667 and £83,333 each. This matters significantly because Corporation Tax rates are: 19% small profits rate (up to the lower threshold), a marginal rate between 19% and 25% for profits between the two thresholds, and 25% main rate above the upper threshold. The associated companies rules therefore prevent business owners from splitting profits across multiple small companies to keep each below the small profits rate threshold. Dormant companies are generally not counted as associated unless they have recently carried on a trade. Holding companies that hold shares in subsidiaries do count. The rules look at the entire ownership chain including overseas companies. HMRC guidance at CTM03500 sets out how control is determined, including the attribution of rights held by connected persons such as spouses and business partners.