One Group, One Threshold: Counting Associated Companies for Corporation Tax in 2026/27

The £50,000 and £250,000 corporation tax thresholds are often spoken about as though they belong to every company. They do not. Where companies are associated, the limits are shared. For a director who owns more than one company — or whose family owns companies alongside theirs — that can produce a 25% corporation tax charge without any obvious change in the underlying business.

The thresholds are shared, not stacked

For corporation tax, the small profits rate of 19% applies where taxable profits are below the lower limit. The main rate of 25% applies where profits exceed the upper limit. Between the two, marginal relief phases the increase in. For the financial year 2026, those limits remain £50,000 and £250,000 before any reduction for associated companies.

When a company has associated companies, the limits are divided. If there is one associated company, the two companies generally share the limits: £25,000 and £125,000 each. With two associated companies, the limits fall to approximately £16,667 and £83,333 for each company. The more associated companies there are, the smaller the band in which marginal relief is available.

This is not an optional claim or an election. The reduction applies automatically where the conditions are met, and it is reflected in the corporation tax return.

What makes a company "associated"?

Broadly, a company is associated with another if one controls the other, or if both are under the control of the same person or persons. Control is not limited to holding more than half of the shares. It can arise through voting power, entitlement to distributable profits, or rights to assets on a winding up. Indirect control and certain rights held by connected persons — such as a spouse or civil partner, or minor children — can also be relevant.

The rule does not depend on the companies trading with each other, sharing premises or being in the same group. Two separate trading companies can be associated simply because the same individual, or the same family group, controls both. A property investment company sitting alongside a trading company can be associated with it. A holding company and its subsidiary are commonly associated.

Dormant companies and companies with no taxable profits need to be considered carefully. It is easy to assume that a company with no activity is ignored, but the correct position depends on the facts and the accounting period. Professional advice is sensible before relying on that assumption.

Arrangements that catch owners out

Family-owned structures are a common source of difficulty. Husband-and-wife companies, parent-and-child companies, and companies held through family trusts can all fall within the associated companies rules. The fact that the owners regard the businesses as separate commercially does not decide the tax position.

Multi-company structures also create risk. A contractor may run a personal service company alongside a separate consultancy. A retailer may hold the trading company and the property company in separate entities. A group may include a dormant company awaiting use. In each case, the starting question is not whether the companies look connected on an organisation chart, but who controls each company and on what basis.

Changes during the accounting period matter too. A share transfer, a new company, a winding up or a change in family ownership can alter the number of associated companies. The thresholds are not simply set once at the start of the year.

Why the arithmetic matters

Take a company with taxable profits of £130,000 and one associated company. Its upper limit is reduced to £125,000. Because profits exceed that reduced limit, the company pays corporation tax at 25% on the whole amount. Had it stood alone, it would have fallen within the marginal relief band and paid less.

The difference in any single year may look modest. Across several companies, or over several years, it can become material. It can also affect how directors plan dividends, bonuses and capital expenditure. A decision that looks efficient for one company may be less efficient once the associated companies calculation is applied across the group.

Practical checks before the 2026/27 year end

First, map every company in which the directors and their close family have an interest. Include companies that are not trading, companies held through trusts, and companies with different accounting periods. The map should show who controls each company and by what right.

Second, test control rather than ownership alone. Review the articles of association, shareholder agreements and any special rights. A 50% shareholding with additional voting rights may be control; a majority shareholding subject to restrictions may need closer analysis.

Third, model the corporation tax position for each company on a standalone basis and then on an associated basis. Use the reduced limits and check whether marginal relief is still available. Do this before deciding on dividends or year-end bonuses.

Fourth, document the commercial rationale for the structure. Separate companies are often used for genuine trading, risk or property reasons. A clear record of those reasons is useful if the arrangement is ever reviewed.

Finally, take advice before restructuring. Transferring shares, changing ownership or inserting a holding company can have capital gains tax, stamp duty and other consequences. The associated companies rules are only one part of the picture, and artificial steps designed solely to preserve a threshold are unlikely to be robust.

The central point is simple: the £50,000 and £250,000 limits are not a personal allowance for each company. In 2026/27, owners of more than one company should check the associated companies position early — and certainly before the accounting period ends.