Own More Than One Company? The Associated Companies Rules Could Cost You

Plenty of business owners run a second limited company — a property company alongside a trading company, a separate venture with a business partner, or a company set up years ago and never quite closed down. What many do not realise is that owning more than one company can increase the Corporation Tax bill on all of them.

How Corporation Tax rates work

Since April 2023 there have been two Corporation Tax rates. Profits up to £50,000 are taxed at the small profits rate of 19%. Profits above £250,000 are taxed at the main rate of 25%. In between, the main rate applies but marginal relief tapers it down — which means every extra pound of profit in that band is effectively taxed at 26.5%.

Where associated companies come in

Those two thresholds are not per owner — they are shared. If your company has associated companies, the £50,000 and £250,000 limits are divided by the total number of companies in the group, including the company itself.

• One company: 19% applies on profits up to £50,000.
• Two associated companies: the limit halves to £25,000 each.
• Three associated companies: the limit falls to £16,666 each.

So a company making £40,000 of profit pays 19% if it stands alone, but slips into marginal relief territory if you own a second company — even if that second company makes very little.

Three practical points

• Dormant companies are usually excluded. A company that has genuinely not traded throughout the accounting period is normally left out of the count — but "dormant" has a specific meaning, and a company with a little bank interest or a small invoice may not qualify.
• It affects payment dates too. The £1.5 million threshold for paying Corporation Tax by quarterly instalments is divided in the same way, so associated companies can bring forward when tax is due.
• Get the count right on the CT600. The return asks for the number of associated companies. An incorrect figure means an incorrect tax calculation, and HMRC can charge interest and penalties on the shortfall.

What you should do

If you have any interest in more than one company — including ones you own with family members or business partners, and ones sitting dormant at Companies House — it is worth reviewing the position before your next year end. Sometimes the answer is simply to close a company that no longer serves a purpose. Sometimes profits can be timed differently. The important thing is that the count is right and the tax bill is not a surprise.

How we can help

At Capital Force One, we review the associated company position for every corporate client as part of preparing the Corporation Tax return, so the rate applied is the right one. If you own more than one company and are not certain how the rules apply to you, get in touch for a free initial consultation.