By Fiscal Umbrella Accountants
Understanding how associated companies impact your corporation tax bill is crucial for optimizing your financial planning. With changes to tax rules in recent years, businesses must stay informed to avoid costly oversights. In this blog, we break down the essentials of associated companies and their effect on corporation tax calculations for the 2025–26 tax year.
What Are Associated Companies?
Under UK tax law, two or more companies are “associated” if:
- One controls the other (directly or indirectly), or
- They’re under common control by the same individual, partnership, trust, or company.
Control is defined as holding more than 50% of:
- Voting power,
- Share capital,
- Entitlement to distributable profits, or
- Assets on winding up.
Example: If Smith Holdings Ltd owns 60% of Alpha Ltd and 55% of Beta Ltd, all three companies are associated.
Why Do Associated Companies Matter for Corporation Tax?
From April 2023 onwards, the number of associated companies directly impacts your corporation tax rates. For 2025–26, the thresholds remain:
- Main rate (25%): Applies to profits above £250,000.
- Small profits rate (19%): Applies to profits below £50,000.
- Marginal relief: Tapers between £50,000–£250,000.
Key Rule: These limits are divided by the total number of associated companies (including your own).
Example: If your company has 3 associated firms, the thresholds shrink to:
- Upper limit: £250,000 ÷ 4 = £62,500
- Lower limit: £50,000 ÷ 4 = £12,500
Profits above £62,500 are taxed at 25%; below £12,500 at 19%. Between these figures, marginal relief applies.
Special Scenarios to Watch
- Short Accounting Periods
If your accounting period is less than 12 months, thresholds are prorated.
Example: A 6-month period with 4 associated companies divides limits by 4, then halves them. - Straddling Financial Years
For periods crossing April 2025, profits are split into notional periods. Associated companies count during the 2025–26 period. - Dormant or Holding Companies
- Dormant companies (no income/activity) are excluded.
- Pure holding companies may be deemed dormant if they only hold subsidiaries and distribute dividends.
- Global Subsidiaries
Non-UK resident companies still count as associated.
Practical Examples
Case Study 1: GreenTech Ltd has 2 subsidiaries and profits of £80,000 (2025–26).
- Total associated companies: 3
- Adjusted thresholds: £250,000 ÷ 3 = £83,333 (upper), £50,000 ÷ 3 = £16,667 (lower).
- Since £80,000 exceeds £16,667 but is below £83,333, GreenTech pays 25% on profits minus marginal relief.
Case Study 2: Sunrise Ltd acquires a dormant subsidiary mid-year.
- The dormant company is ignored, so thresholds remain unchanged.
Why Partner With Fiscal Umbrella Accountants?
- Avoid Costly Errors: Misclassifying associated companies can lead to overpayment or penalties.
- Optimize Tax Efficiency: We’ll help structure your group to maximize reliefs.
- Stay Updated: Tax rules evolve—we monitor changes so you don’t have to.
Final Tips for 2025–26
- Review ownership structures annually.
- Track dormant entities and overseas subsidiaries.
- Plan for threshold divisions when expanding your group.
Need Support?
Let Fiscal Umbrella Accountants simplify your corporation tax strategy. Contact us today for tailored advice.
Disclaimer: This blog provides general guidance. Consult a professional for company-specific advice.
📞 Reach Out: Questions about associated companies? Call our experts at 07432587341 or email info@fiscalumbrella.co.uk.