Pillar Guide - Business Tax - 2026/27
Associated Companies Rule 2026/27: How It Splits Your Tax Thresholds
If your company is under common control with another company, the £50,000 small profits threshold and £250,000 upper marginal relief threshold are divided between all of them. This guide explains who counts as associated, how the division works, and how it changes your effective Corporation Tax rate.
Updated 3 July 2026
Key Facts
Standard small profits threshold: £50,000
Standard upper threshold: £250,000
With 1 associated company: £25,000 / £125,000
Marginal relief fraction: 3/200
What Is the Associated Companies Rule?
Since the Corporation Tax rate changes of April 2023, companies with profits up to £50,000 pay the small profits rate of 19%, companies with profits above £250,000 pay the main rate of 25%, and profits in between are taxed at a tapered rate using marginal relief. To stop groups multiplying access to the low rate by splitting one trade across several companies, both the £50,000 and £250,000 thresholds are divided by the total number of associated companies, counting the company itself.
Who Counts as Associated
- Two companies are associated if one controls the other, typically through owning more than 50% of the shares or voting rights
- Two companies are also associated if both are under the control of the same person, or the same group of people, even without one owning the other directly
- Non-UK resident companies count too, if they are under common control with a UK company
- Companies owned by different family members can be treated as associated under "substantial commercial interdependence" rules if they are financially, economically or organisationally linked, for example sharing premises, staff or trading closely together
- The test looks at control at any point during the accounting period, not just at the year end
Exclusions
- Companies that are dormant for the whole of the accounting period are excluded from the count
- Passive holding companies with no significant activity beyond holding shares are generally excluded in most standard cases
- A company only counts once, however it is connected — you do not double count the same associated company through two different routes of control
How the Thresholds Are Divided
The formula is straightforward: take the standard thresholds and divide by the number of associated companies (including the company itself).
- No associated companies (divide by 1): £50,000 and £250,000, the standard thresholds
- One associated company (divide by 2): £25,000 and £125,000
- Two associated companies (divide by 3): £16,666 and £83,333 approximately
- Three associated companies (divide by 4): £12,500 and £62,500
The thresholds are also pro-rated for accounting periods shorter than 12 months, applied in addition to the associated companies division.
Worked Example
A family owns two trading companies: a shop-fitting business and a separate joinery business, both controlled by the same two shareholders. Because both companies are under common control, they are associated with each other. Each company's small profits threshold becomes £25,000 (£50,000 ÷ 2) and its upper threshold becomes £125,000 (£250,000 ÷ 2).
If the shop-fitting company makes £40,000 profit in 2026/27, it now falls above its reduced £25,000 small profits threshold and into the marginal relief band, paying a tapered rate above 19% on that profit, even though £40,000 would have been comfortably within the standard 19% band with no associated companies.
Common Pitfalls
- Forgetting overseas associated companies. A UK company with a foreign parent or sister company under common control still has its thresholds divided, even though the overseas company pays no UK Corporation Tax itself.
- Missing family-owned interdependent companies. Companies owned by different family members can still be associated if they are commercially interdependent, catching businesses off guard when reviewed by HMRC.
- Assuming dormant companies always count. Genuinely dormant companies are excluded, so including them unnecessarily understates your available thresholds.
- Restructuring purely for tax reasons. Artificial steps taken mainly to reduce the associated companies count risk challenge under anti-avoidance rules; changes should be commercially driven.
- Not reporting the count correctly. An incorrect associated companies figure on the CT600 leads to the wrong Corporation Tax charge and can trigger an HMRC enquiry.
Frequently Asked Questions
What is the associated companies rule?
Since April 2023, a company's £50,000 small profits threshold and £250,000 upper marginal relief threshold are divided by the number of associated companies it has, including itself. If a company has one associated company, each threshold is halved: £25,000 and £125,000. This prevents groups from multiplying the low 19% small profits rate by splitting a single trade across several companies.
What makes two companies associated?
Two companies are associated if one has control of the other, or both are under the control of the same person or group of persons, at any point during the accounting period. Control generally means owning more than 50% of the shares or voting rights, though HMRC also looks at rights and powers more broadly, not just direct shareholdings.
Do dormant companies count as associated?
No. Companies that are dormant throughout the accounting period, and companies that have not carried on any trade or business (passive holding companies with no significant activity are treated similarly in most cases), are excluded from the associated companies count, so they do not dilute your thresholds.
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How are the thresholds divided if I have three associated companies?
The thresholds are divided by the total number of associated companies, including the company itself. Four associated companies (the company plus three others) means each threshold is divided by 4: the small profits threshold becomes £12,500 and the upper marginal relief threshold becomes £62,500.
Does it matter if the associated company is based overseas?
Yes, non-UK resident companies can still count as associated if they are under common control with a UK company, even though they are not themselves within the UK Corporation Tax regime. This catches international group structures, not just UK-only groups.
Are spouses' or family members' companies automatically associated?
Not automatically, but HMRC applies "substantial commercial interdependence" rules where companies are owned by related individuals. If companies owned by different family members are financially, economically or organisationally interdependent — for example, sharing customers, staff, premises or trading closely together — they can be treated as associated even without shared shareholdings.
How does the associated companies rule interact with marginal relief?
Marginal relief smooths the rate between 19% and 25% for profits between the small profits threshold and the upper threshold. Once those thresholds are divided by the number of associated companies, marginal relief kicks in, and disappears into the full 25% rate, at correspondingly lower profit levels for each company in the group.
Can restructuring reduce the number of associated companies?
In principle yes — for example, striking off a genuinely dormant shell company, or ending common control by a genuine change of ownership, can remove a company from the count. However, any restructuring undertaken mainly to avoid the associated companies rule risks being challenged by HMRC under general anti-avoidance principles, so restructuring should be driven by real commercial reasons, not tax alone.
Do I need to declare associated companies on my Company Tax Return?
Yes. The number of associated companies must be reported on the CT600 Company Tax Return so HMRC can apply the correctly divided thresholds. Getting this wrong — for example, forgetting a dormant subsidiary that should be excluded, or missing a genuinely associated company — can lead to an incorrect tax calculation and potential penalties on amendment.
What happens if the number of associated companies changes partway through the year?
The count is based on the position at the end of the accounting period, but if control changes during the year — for example, a company is sold or a new company is incorporated under common control — you use the number of associates that applied for each part of the period, apportioning the thresholds accordingly rather than applying a single figure to the whole year.
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Disclaimer: This guide is for general information only and does not constitute tax advice. Always confirm your associated companies position with HMRC or a qualified accountant, since the rules involve detailed control and interdependence tests.