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Does owning another company change my Corporation Tax?

It can.

If you control another company that trades or does business, the two are "associated". Your £50,000 and £250,000 profit limits for the lower tax rates are then divided by the number of companies, counting yours.

Published

At a glance

Applies to
Your company, if you another company that or does business, or one controls the other, at any time in your accounting period
What to do
Count your for each before you work out the tax
If you get it wrong
Count too few and your limits are too high, so you may pay too little tax. HMRC may charge interest on tax paid late

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

Does this apply to me?

  • You own one company and no shares in any other. Usually not. But read "A family member's or 's company" if a or fellow partner controls a company.

  • You control a second company, and it traded or did business at some time while you controlled it. Yes: the two are .

  • Your second company did no trade or business all year. No. Leave it out.

  • Your company owns more than half of another company, or the other way round. Yes, unless the other company did no while they were linked.

  • A close relative or a fellow partner controls a company. Only if the two companies are , or one of you both through your own rights. "A family member's or fellow partner's company" says who counts.

Sources

What to do

  1. List the companies you control. Include any you alone or with other people, at any time in your . Add any company yours controls, or that controls yours.

  2. Cross off any that did nothing. Leave out a company that did no at any time while it was linked to yours.

  3. Check any company a close relative or fellow partner controls. Count it if the two companies are . Also count it if one person controls both companies through their own rights.

  4. Divide the limits. Divide £50,000 and £250,000 by the number of companies left, plus one for your own.

  5. Work out your tax with the new limits. HMRC's online asks for details.

Sources

How it works

Each associated company cuts your profit limits

For the year starting 1 April 2026, the is 19% and the is 25%.

Profits up to a pay 19%. Profits over an pay 25%. In between, you pay 25% less "marginal relief". This is a cut in the tax, so the rate rises gradually. The profit tested is your taxable profit, plus certain dividends your company received from other companies.

With no , the limits are £50,000 and £250,000 for a 12-month period. An associated company is one linked to yours by . With associated companies, you divide both limits by the number of companies, counting yours.

  • Associated companies

    None

    Divide by
    1
    Lower limit
    £50,000
    Upper limit
    £250,000

  • Associated companies

    One

    Divide by
    2
    Lower limit
    £25,000
    Upper limit
    £125,000

  • Associated companies

    Two

    Divide by
    3
    Lower limit
    £16,666.67
    Upper limit
    £83,333.33

  • Associated companies

    Three

    Divide by
    4
    Lower limit
    £12,500
    Upper limit
    £62,500

These are for a 12-month , rounded to the penny. Your accounting period is the period your tax is worked out for. It is usually your .

For example

Say Bramley Studio Ltd has one associated company, so its limits are £25,000 and £125,000. Its taxable profit for 2026 is £27,500, with no dividends.

Tax at 25%
£27,500 × 25%
£6,875.00
Marginal relief
3/200 × (£125,000 − £27,500)
−£1,462.50
Tax to pay
£5,412.50

If instead

Bramley has no associated company, so the 19% rate applies.

Tax to pay
£27,500 × 19%
£5,225.00

That is £187.50 less on the same profit.

Where does 3/200 come from? Parliament sets the each year. It is 3/200 for the years starting 1 April 2025, 2026 and 2027.

It is the size that takes the tax from 19% at the lower limit up to 25% at the upper limit. HMRC shows the working. Tax at the upper limit is £62,500, which is £250,000 × 25%. Tax at the lower limit is £9,500, which is £50,000 × 19%.

The £53,000 difference is tax on the £200,000 between the limits. That is 26.5% on each extra pound. It is 1.5% more than the 25% main rate, and 1.5% is 3/200.

Dividing the limits does not change the fraction. Our working: the upper limit is 5 times the lower limit, so the gap between them is 4 times the lower limit. That stays true when both are divided.

Our working: at the lower limit, the relief has to cut the tax by 6% of the profit, to take it from 25% to 19%. The relief is worked out on the gap to the upper limit, which is 4 times the profit there. So the fraction is 6% × 1/4 = 1.5% = 3/200, however many companies there are.

Here is our working for one associated company, with limits of £25,000 and £125,000:

  • Profit

    £25,000, the lower limit

    Tax at 25%
    £6,250.00
    Less marginal relief
    3/200 × £100,000 = £1,500.00
    Tax to pay
    £4,750.00, which is 19%

  • Profit

    £27,500, Bramley's profit

    Tax at 25%
    £6,875.00
    Less marginal relief
    3/200 × £97,500 = £1,462.50
    Tax to pay
    £5,412.50

  • Profit

    £125,000, the upper limit

    Tax at 25%
    £31,250.00
    Less marginal relief
    3/200 × £0 = £0.00
    Tax to pay
    £31,250.00, which is 25%

At exactly the lower limit, the 19% rate applies and there is no . Our working shows the formula gives the same £4,750.00, so the tax does not jump as profit passes the limit.

Sources

The detail The exact rule

The law sets the lower limit at £50,000 and the upper limit at £250,000 if the company has no associated company in the accounting period. If it has one or more, the limits are given by formulas in which N is the number of those associated companies. The formulas are images on legislation.gov.uk (Corporation Tax Act 2010, section 18D(2) and (3)). HMRC's manual states the rule in words: the limits are divided by one plus the number of companies associated with the company. HMRC's example is three associated companies for the twelve months to 31 March 2024: £50,000 / 4 = £12,500 and £250,000 / 4 = £62,500 (CTM03935). For a period under 12 months, the limits are proportionately reduced (section 18D(4)). HMRC says the divided figures are proportionately reduced too (CTM03935, referring to CTM03930).

The small profits rate applies only if the company is , is not a , and its augmented profits do not exceed the lower limit (section 18A). Marginal relief applies where the company is UK resident, is not a close investment-holding company, its augmented profits exceed the lower limit but not the upper limit, and they include no ring fence profits (section 18B). The relief is (F × (U − A)) × (N ÷ A). F is the standard marginal relief fraction, 3/200 for the financial year 2026. U is the upper limit, after dividing. A is augmented profits and N is taxable total profits. This N is not the N in section 18D.

are plus any exempt distributions of a qualifying kind received that are not excluded (section 18L). If the company received none, A equals N.

Sources

What counts as control

You control a company if you can direct its affairs. In particular, you control it if you own, or have a right to get, more than half of:

  • its shares

  • the votes

  • its income, if all of it were paid out to its owners

  • its assets, if it were closed and its assets shared out

A of people who meet one of these tests together control the company together. Rights that someone holds for you (your "") count as yours.

Two companies are associated if one controls the other, or the same person or group of people controls both. It does not matter which country the other company is resident in for tax.

For example

Say Priya owns all the shares in Bramley Studio Ltd and 60 of the 100 shares in Bramley Prints Ltd, a printing company.

60 is more than half, so she controls both companies.

Bramley Studio Ltd has one associated company.

Sources

The detail The legal tests for control

"Control" has the meaning used for in Part 10 of the Corporation Tax Act 2010, sections 450 and 451 (section 18E(5); CTM03940).

Section 450: a person has control of a company if the person exercises, is able to exercise, or is entitled to acquire direct or indirect control over its affairs. In particular, the person has control if they possess or are entitled to acquire the greater part of: the or issued share capital; the voting power; so much of the issued share capital as would entitle them to the greater part of the income if all of it were among the participators; or rights to the greater part of the assets available for distribution among the participators on a winding up or in any other circumstances. Rights as a loan creditor are ignored for the income test. Two or more persons who together meet any of these conditions have control.

Section 451: a person is treated as entitled to acquire anything they are entitled to acquire, or will be entitled to acquire, at a future date. Rights held on a person's behalf, or exercisable at their direction, are attributed to that person; HMRC calls these the person's nominees. There may also be attributed the rights of companies the person controls, alone or with , and of the person's associates. Where associates' rights are taken into account, all combinations must be tried, including all, some and none. The rights of an associate's nominees are included, but not the rights of associates of associates (CTM03949).

Sources

A company that does nothing does not count

Leave out an associated company that did no at any time in your accounting period.

Timing matters. A company linked to yours for any part of the period counts for the whole period. This applies to each company, even if they were linked at different times. But if it was linked for only part of the period, and did no trade or business in that part, leave it out.

If you are not sure whether the other company did any , get advice before you leave it out.

For example

Say Priya's second company, Bramley Prints Ltd, did no trade or business at any time in 2026.

It is left out, so Bramley Studio's limits stay at £50,000 and £250,000.

Tax on its £27,500 profit
£27,500 × 19%
£5,225

If instead

Priya set up Bramley Prints Ltd on 1 July 2026, and it started trading that day.

It counts for the whole of 2026, so the limits are £25,000 and £125,000.

Sources

The detail Which companies are left out

Section 18E(3): an associated company is ignored if it has not carried on a trade or business at any time in the accounting period. It is also ignored if it was an associated company for part only of the period and has not carried on a trade or business at any time in that part. HMRC's manual discusses the meaning of "business" at CTM03590 and CTM03591.

Section 18F: a is treated as not carrying on a business, so it is ignored. This applies if the company carries on a business of making investments in the period and, throughout the period:

  • it carries on no trade

  • it has one or more

  • it is a passive company.

A company is a passive company if all of these apply:

  • it has no assets other than shares in its 51% subsidiaries

  • no income arises to it other than dividends

  • any dividend income is paid on to its , and those dividends are

  • no accrue to it

  • it incurs no for its business of making investments

  • no are from its total profits.

Sources

A family member's or fellow partner's company

Some people's rights can count as yours when testing control. The law calls them your "associates". They are:

  • your husband, wife or , even if you are separated, but not once you are divorced

  • your parents, grandparents and earlier generations

  • your children, grandchildren and later generations

  • your brothers and sisters. A half-brother counts; a stepbrother does not

  • fellow members of any you belong to, including a (LLP). Someone you only do business with does not count

  • the of some trusts, and the of some estates

Other relatives, such as cousins, aunts and uncles, are not associates only because they are related.

Associates' rights count as yours only if the two companies are "". In plain words, closely tied in business. The law looks at financial, economic and organisational links between them. Not all three are needed. A strong enough financial link is enough on its own.

HMRC says the aim is to count real business relationships. It does not want to count links that are an accident of circumstance, such as family ties that do not reach into the business.

Your own rights always count, whether or not the companies are closely tied. If you are not sure whether two companies are this closely tied, get advice before you leave one out.

For example

Say Priya's husband owns all the shares in his own café company, and Priya owns none.

The café and Bramley Studio have no financial, economic or organisational links.

His rights do not count as hers, so the two companies are not associated.

If instead

The two companies are closely tied in business.

His rights count as hers, so she controls both and they are associated.

Sources

The detail Associates and the family rule

Section 18G applies where it must be decided under section 18E(4) and (5) whether two companies are associated, and the relationship between them is not one of substantial commercial interdependence. Then, in applying section 451, any person to whom rights and duties fall to be attributed under section 451(4) and (5) is treated as having no associates. HMRC's manual (CTM03948) says the rights of a person's nominees are attributed, and the indirect rights of a person's associates held in separate companies are also attributed unless there is no substantial commercial interdependence. Associates include spouses and civil partners, blood relatives and trustees or settlors of trust beneficiaries (see section 448). Where there is no substantial commercial interdependence, the only rights attributed are those of the person's nominees and of companies the person controls, alone or with associates.

Section 448: a person's associates are any relative or partner; the trustees of a settlement where the person, or a relative of the person (living or dead), is a settlor; the trustees where the person has an interest in shares or obligations of a company held in trust; the personal representatives where the person has an interest in shares or obligations that are part of a deceased person's estate; and, where the person is a company, certain other companies. "Relative" means a spouse or civil partner, a parent or remoter forebear, a child or remoter issue, or a brother or sister. HMRC's close company guidance (CTM60150) adds that separated spouses are associated but divorced persons are not, and that other relatives count only with a blood relationship: half-brothers are associated, stepbrothers are not. HMRC also says "relative" is defined quite narrowly: only immediate relatives and lineal ascendants and descendants. Section 448 does not define "partner". HMRC says it refers to a member of a partnership (for example a general partnership, limited partnership, Scottish limited partnership or limited liability partnership) in which the person is also a member. It does not include a "business partner" the person is accustomed to dealing with outside those more formal partnerships.

Substantial commercial interdependence: SI 2022/1203, regulation 3, applies the financial, economic and organisational factors in the National Insurance Contributions Act 2014, Schedule 1, paragraph 3(3) (CTM03950). HMRC says not all three types of link need exist; a sufficient financial link alone is enough.

Sources

Consequences

If you get it wrong

If you count too few , your limits are too high. You may use the when you should not, or claim too much marginal relief. Then you pay too little tax.

HMRC may charge interest on tax not paid on time. Your includes a declaration that it is correct and complete, to the best of the knowledge of the person making it.

If you count too many, your limits are too low and you may pay more tax than you need to.

Sources

Less common situations

Your accounting period is shorter than 12 months. The divided limits are cut again, in proportion to the shorter period.

Your period crosses 1 April and the limits change. The two parts of the period are treated as separate periods. If only the rate or changes, the is split between the parts instead. That split does not mean the parts are treated separately when you divide the limits for associated companies.

Your profits are high and you have associated companies. They also cut the £1.5 million profit limit for paying tax in instalments. With 5 , it is £1.5 million ÷ 6 (the 5 plus yours) = £250,000. A company whose tax for a 12-month period is £10,000 or less still pays in one go; see when to pay Corporation Tax.

Your company only holds investments. HMRC says a that only holds investments, such as a bank deposit account, is a "". It pays the main rate, with no 19% rate or marginal relief, however many associated companies it has. A company that exists wholly or mainly to trade commercially, or to let land to unconnected people, is not one.

A holding company owns your trading company. A company whose only is holding shares in its own , and which passes its dividends on, may be left out. The conditions are under "Which companies are left out" above.

Sources

Worked example: Bramley Studio Ltd

Say Priya a second company, Bramley Prints Ltd, all through 2026. Say Bramley Studio's taxable profit is £80,000, not the £27,500 used earlier on this page. Its accounting period is 1 January to 31 December 2026. Both companies are UK resident and trade, and Bramley Studio received no dividends.

The rates, and limits are the same for the years starting 1 April 2025 and 1 April 2026. So 2026 is worked out as one period.

Sources

Limits for 2026

  • Associated companies

    1

    Bramley Prints Ltd. Priya controls it and it traded all year

  • Divide the limits by

    2

    One associated company, plus Bramley Studio itself

  • Lower limit

    £25,000

    £50,000 ÷ 2

  • Upper limit

    £125,000

    £250,000 ÷ 2. This is the figure used for marginal relief

Sources

Corporation Tax on £80,000

  • Taxable profit

    £80,000.00

    A "say" figure. No dividends, so this is also the profit tested against the limits

  • Tax at the main rate

    £20,000.00

    £80,000 × 25%

  • Less marginal relief

    −£675.00

    Profit is over £25,000 and not over £125,000. Relief is 3/200 × (£125,000 − £80,000)

  • Tax to pay

    £19,325.00

    An effective rate of 24.16%, rounded

Sources

What the associated company costs

  • Tax with no associated company

    £17,450.00

    £20,000 less relief of 3/200 × (£250,000 − £80,000), which is £2,550

  • Tax with one associated company

    £19,325.00

    From the table above

  • Extra tax

    £1,875.00

    The relief falls from £2,550 to £675, because the upper limit halved. Our working: the gap to the upper limit shrinks by £125,000, and 3/200 × £125,000 = £1,875

Sources

Not covered here

Penalties for mistakes in a , and in full. See how marginal relief works, which rate your company pays, a period that crosses 1 April and dormant for Corporation Tax or Companies House.

Where this comes from

83 official sources. Open a group to see them.

The law 38 sources
HMRC 23 sources
GOV.UK 20 sources
Companies House 1 source
FRC 1 source

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