Corporation tax for 2025/26 and 2026/27 is charged at 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between. If your company has associated companies, those limits are divided by the total number of associated companies, counting the company itself. The rates never change; the bands shrink. Two companies under common control get limits of £25,000 and £125,000 each. Three get £16,667 and £83,333. Five get £10,000 and £50,000, at which point every company in the stable is paying 25% on quite modest profits.
Whether a company counts is decided by the association rules in CTA 2010 sections 25 to 30, in force for accounting periods beginning on or after 1 April 2023. This page covers those rules in full: the control tests, when a spouse's or relative's company counts, the exclusions for dormant and passive holding companies, worked examples of what the division costs at two, three and five companies, the quarterly instalment knock-on, and the difference between associated companies and group companies. For the marginal relief formula itself and the arithmetic inside the band, see our guide to corporation tax marginal relief.
When Are Two Companies Associated?
A company is associated with another company for an accounting period if, at any time in that period or the preceding 12 months relevant to the test:
- one company controls the other, or
- both companies are under the control of the same person or persons.
Two points in that definition matter most. First, the controller does not have to be a company. An individual who owns two limited companies outright makes them associated, even though there is no group structure, no holding company and no shareholding link between the two companies themselves. Second, a company counts if it is associated at any point during the accounting period, not just at the year end. Acquire a second company in month eleven and it counts for the whole period. The one mercy is that each associate is only counted once, however many ways it qualifies.
Residence is irrelevant. An overseas company under common control counts, so a UK trading company and a US LLC or a Spanish property SL owned by the same person are associated, and the UK company's limits are divided even though the overseas entity pays no UK corporation tax.
The Control Tests
Control is defined by CTA 2010 sections 450 and 451, and it is deliberately wide. A person controls a company if they can secure that the company's affairs are conducted in accordance with their wishes, and in particular if they hold, or are entitled to acquire, more than 50% of any one of:
- the share capital or issued share capital,
- the voting power,
- the income available for distribution among participators, or
- the assets available for distribution on a winding up.
Failing any one test on its own does not clear you: exceeding 50% on any single measure is enough. Alphabet share structures do not break control, because the tests look through share classes to voting power and economic entitlement. Rights a person is entitled to acquire, for example under an option, count as if already held. Where no single person controls a company, HMRC looks for the minimum controlling combination: the smallest group of persons who together have control and who could not drop a member and still have it. If the same minimum controlling combination controls two companies, the companies are associated.
Spouses, Relatives and Substantial Commercial Interdependence
This is the test that decides most husband-and-wife cases, and it is more forgiving than many directors fear. When applying the control tests, the rights of a person's associates (spouse or civil partner, parents and remoter forebears, children and remoter issue, siblings, and business partners) are attributed to that person only if there is substantial commercial interdependence between the two companies (CTA 2010 section 27). Without interdependence, the attribution simply does not happen.
Substantial commercial interdependence is judged on three factors, set out in the Corporation Tax Act 2010 (Factors Determining Substantial Commercial Interdependence) Regulations 2011:
- Financial interdependence: one company gives financial support to the other (loans, guarantees), or each has a financial interest in the same business.
- Economic interdependence: the companies seek the same economic objective, one's activities benefit the other, or they have common customers.
- Organisational interdependence: the companies share management, employees, premises or equipment.
Worked through: a couple in Wrexham where one spouse runs an electrical contracting company and the other runs an online craft business, with separate bank accounts, separate customers, no inter-company loans and different premises, do not have interdependent companies. Neither spouse's rights are attributed to the other, so each controls only their own company and the companies are not associated. Contrast a couple where one company invoices the other for management services, both operate from the same office and the trading company lent the property company its deposit: those companies are interdependent, the rights are attributed, and both are associated. One factor, if substantial, can be enough; HMRC's guidance is at CTM03770 onwards.
Where the same person controls both companies directly, none of this matters: attribution is only needed when the shareholdings are split between relatives. A director who personally owns 100% of two companies cannot escape association however independent the trades are.
Which Companies Are Excluded from the Count?
Three exclusions take a company out of the count even though the control tests are met:
- Dormant companies: a company that carries on no trade or business at all throughout the accounting period is excluded. Part-period dormancy does not help: a company that traded for even one month counts in full for that period. Dormant is a high bar. A company letting a single property, receiving loan interest or actively managing investments is carrying on a business and counts. A true shelf company with no activity of any kind does not.
- Passive holding companies: a holding company whose only activity is holding shares in its 51% subsidiaries, which has no income or gains other than dividends, and which distributes those dividends in full to its shareholders, is treated as carrying on no business and is excluded (CTA 2010 section 26). Charge the subsidiaries a management fee, hold the group's premises or retain the dividends, and the exclusion is lost.
- Control held only by a loan creditor or trustee: association through a bank's fixed or floating charge, or through certain fiduciary or trustee holdings, is disregarded where there is no other connection between the companies.
A company in administration or liquidation may also fall out of association where the shareholders have genuinely lost control to the office holder, but this is fact-specific and worth professional confirmation before you rely on it.
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What the Division Costs: Two, Three and Five Companies
Divide both limits by the total count, then apply the ordinary rules to each company's own profits. The figures below use the 2025/26 and 2026/27 rates (19%, 25%, marginal relief fraction 3/200) and assume each company's augmented profits equal its taxable profits.
| Total associated companies | Small profits limit (each) | Upper limit (each) | QIP threshold (each) |
|---|---|---|---|
| 1 (no associates) | £50,000 | £250,000 | £1,500,000 |
| 2 | £25,000 | £125,000 | £750,000 |
| 3 | £16,667 | £83,333 | £500,000 |
| 5 | £10,000 | £50,000 | £300,000 |
Two companies: £60,000 profit
A York design consultancy makes £60,000. Its owner also controls one other active company, so the limits are £25,000 and £125,000. The profit sits in the reduced marginal relief band: tax at 25% is £15,000, marginal relief is (£125,000 minus £60,000) x 3/200 = £975, so the bill is £14,025 (23.4% effective). Standing alone, the same company would deduct relief of (£250,000 minus £60,000) x 3/200 = £2,850 and pay £12,150. The associate costs £1,875 a year. That £1,875 is not a coincidence of the numbers: whenever a company sits in the band both with and without the associate, halving the limits costs a flat £125,000 x 3/200 = £1,875, whatever the profit.
Three companies: £90,000 profit
With three companies in the count, the upper limit is £83,333. A company making £90,000 is now above its upper limit, so it pays the full 25%: £22,500. Standing alone it would pay £22,500 minus (£160,000 x 3/200) = £20,100. The two associates cost £2,400 here, more than the flat £1,875, because the company has been pushed out of the band altogether.
Five companies: £48,000 profit
With five companies, the limits are £10,000 and £50,000. A company making £48,000, which alone would pay 19% (£9,120), now sits near the top of its reduced band: tax at 25% is £12,000, relief is (£50,000 minus £48,000) x 3/200 = £30, and the bill is £11,970 (24.9% effective). Four associates turn a 19% company into a near-25% company, an extra £2,850 on £48,000 of profit.
The Quarterly Instalment Knock-On
The count reaches beyond the rate. Large companies, meaning augmented profits over £1.5 million, must pay corporation tax by quarterly instalments rather than 9 months and 1 day after year end, and that £1.5 million threshold is divided by the number of associated companies plus one (the company and its associates) and time-apportioned for short periods. Three companies under common control are each large at £500,000 of augmented profits; five at £300,000. The £20 million very-large threshold and the £10 million growth-relief cap divide the same way. So a growing multi-company owner can hit accelerated payment dates years before any single company looks large. The instalment mechanics, dates and interest rates are covered in our guide to paying corporation tax early or in instalments.
Associated Companies vs Group Companies
The two concepts get conflated constantly and they answer different questions. Group relationships need a 75% corporate shareholding chain: 75% groups can surrender losses between members (group relief), transfer assets at no gain no loss, and pay dividends that never enter augmented profits. Association only needs control, more than 50%, and the controller can be an individual, so it casts a far wider net. Two companies owned 100% by the same person are associated but are not a group: their thresholds are divided, yet one cannot surrender its losses to the other. Every 75% group member is also an associated company, so a group gets the threshold division without necessarily getting a loss to use against it. If your structure is heading past two or three entities, whether to sit them under a holding company is a real decision; our guide to holding company structures works through it.
Managing the Count
The count is a fact, not a filing choice, but it is a fact you can change:
- Strike off genuinely dead companies. A non-trading company that still holds a bank account earning interest is carrying on a business and counts. Empty it, close it, and it drops out of the count from the first full accounting period of true dormancy, and off the register entirely once struck off or liquidated.
- Question whether a new venture needs a new company. A division inside the existing company adds nothing to the count. A new entity does, and divides the limits for every company you control from the period of incorporation if it starts trading.
- Keep spousal businesses genuinely separate if they are separate. Interdependence is built from facts (shared premises, inter-company loans, common customers), and those facts are within your control before they happen, not after.
- Get the count right on the CT600. HMRC's software divides the limits only if you enter the number of associated companies, and an understated count means understated tax, penalties and interest when it surfaces.
The rate consequences of the count, the marginal relief formula applied to the reduced limits, and what an extra pound of profit costs inside the band are all worked through in our marginal relief guide, and the headline rates and payment deadlines are in our overview of how much corporation tax you pay. If you control more than one company and are not certain of your count, get in touch: mapping the structure takes an hour and regularly surfaces either an overpayment or an exposure.