Many UK business owners were surprised to see their corporation tax increase in recent years. While profits play a major role, another often overlooked factor is associated companies. If your business is connected to other companies, your corporation tax thresholds may be reduced, which can lead to a higher tax bill.

Understanding how associated companies work is therefore important for directors who operate multiple businesses or group structures.

What Are Associated Companies?

Companies are considered associated if one company controls another or both companies are under the control of the same person or group of people.

Control does not only mean owning shares. HMRC also considers voting rights, entitlement to profits, and rights to company assets on winding up.

Common examples include:

• A director owning more one limited company

Even if the businesses operate in completely different industries, they can still be classed as associated if control exists.

Why Associated Companies Affect Corporation Tax

Since April 2023, the UK corporation tax system introduced a main rate of 25% and a small profits rate of 19%.

However, the thresholds for these rates depend on how many associated companies exist.

Normally:

• Profits up to £50,000 are taxed at 19 percent
• Profits above £250,000 are taxed at 25 percent
• Profits between these amounts fall into marginal relief

But when companies are associated, these thresholds must be divided by the number of associated companies.

For example:

If you have one company only

Small profits threshold = £50,000
Upper threshold = £250,000

If you have two associated companies

Small profits threshold = £25,000 each
Upper threshold = £125,000 each

If you have five associated companies

Small profits threshold = £10,000 each
Upper threshold = £50,000 each

This means businesses can move into the higher tax bracket much sooner.

A Simple Example

Imagine a director owns three companies, each making £60,000 profit.

Without associated company rules, each company might expect to pay tax at the lower rate.

However, because the thresholds must be divided by three:

• Small profits limit becomes £16,667
• Upper limit becomes £83,333

This pushes more profit into marginal or higher tax bands, increasing the overall tax payable.

Common Situations That Trigger Associated Companies

Many directors unintentionally create associated companies. Some common situations include:

• Starting a second business alongside your main company
• Holding property in a separate company
• Creating a new company for a different project
• Family members owning companies but operating together
• Joint ventures with shared control

Because the rules look at control and relationships, even companies owned by spouses or relatives can sometimes be treated as associated.

Planning Ahead

Associated companies do not always mean you have done anything wrong. However, they can significantly affect tax planning.

Before setting up another company, it is worth considering:

• Whether the new company will become associated
• The impact on corporation tax thresholds
• If a group structure may be more appropriate
• Whether profit allocation needs reviewing

Proper planning can prevent unexpected tax bills and help maintain efficiency across your business structure.

Final Thoughts

The associated company rules are one of the biggest reasons why some businesses have seen their corporation tax increase since 2023. Directors running multiple companies should regularly review their structures to understand how the rules apply.

A small change in ownership or control can sometimes have a large impact on tax thresholds.

Need Help Reviewing Your Company Structure?

If you run multiple companies and want to ensure your tax position is efficient and compliant, we can help review your structure and provide practical guidance.