The short answer: how the associated companies count works
Count every company you control that has actually traded in the year, and that is the number your corporation tax limits get divided by. Control means holding more than half the shares or the votes, and it does not matter whether the companies do anything similar or ever deal with each other. A property company, a consultancy and a shop, all owned by you, are three associated companies even though they have nothing in common.
This matters because the two thresholds that set your corporation tax rate, 50,000 pounds and 250,000 pounds, are shared across all of them rather than given to each. So the same profit can be taxed more heavily simply because you own a second company, with no change to the business making the money. The rest of this guide is the detail behind that: what control means, what the dormant exception does, and what the extra tax actually comes to. It is written by LOYALS, a King's Cross firm of accountants that handles annual accounts and corporation tax for owner managed companies across London.
What makes a company associated, and what does not
A company is associated with yours when one controls the other, or the same person or people control both, at any point in the accounting period. Control is the test, and it is measured by more than half of the share capital, the voting power, the income if the company were wound up, or the assets on a winding up. Hit any one of those over 50 percent and you have control, which is why a company where you hold 60 percent of the shares counts even if a co-owner runs it day to day.
The flowchart below is the quickest way to place a company: control decides whether it is in scope at all, and trading decides whether it then counts.
Where it gets less obvious is family. Your own rights are always counted, but a spouse's, a partner's or a relative's company is only added to your count where there is substantial commercial interdependence between the two companies, meaning real financial, economic or organisational links such as shared money, shared customers or shared premises and staff. If your husband runs an unconnected business that never touches yours, it usually stays separate; if the two lend each other money, share a bookkeeper and work the same clients, it will be pulled in. That interdependence test is the part most owners get wrong, and it is the one point where the count can move against you without you realising, so it is worth checking rather than assuming. For the mechanics behind all of this, the monthly numbers matter, which is where our management accounts service keeps the picture current.
What associated companies actually cost you
Each active company you control divides both limits by the total number of companies. On your own you get the full 50,000 pound small profits limit and the 250,000 pound main rate limit, with marginal relief in between at an effective 26.5 percent. Add a second company and both halve, to 25,000 and 125,000. A third cuts them to about 16,667 and 83,333, and a fourth to 12,500 and 62,500, as HMRC's marginal relief guidance sets out. The rates themselves are unchanged for the 2026 to 2027 year: 19 percent below the lower limit, 25 percent above the upper one, confirmed in the published corporation tax rates.
In real money, take a company making 120,000 pounds of profit. On its own, marginal relief brings its corporation tax to about 28,050 pounds. Add one active associated company, the limits halve, and the same profit now costs about 29,925 pounds, roughly 1,875 pounds more for nothing the business did. Here is the part that is genuinely useful to know: the damage does not keep growing. Once a third company pushes your 120,000 pounds fully past the shrunken upper limit, the profit is all taxed at 25 percent, and a fourth or fifth company adds nothing further. At this profit the total extra tax caps at about 1,950 pounds a year.
The full worked figures, so you can find your own profit level, are below.
Corporation tax limits and the cost at 120,000 pounds of profit, 2026 to 2027 (illustrative):
| Companies you control | Lower limit | Upper limit | Tax on £120,000 | Extra vs one |
|---|---|---|---|---|
| 1 company | £50,000 | £250,000 | £28,050 | £0 |
| 2 companies | £25,000 | £125,000 | £29,925 | £1,875 |
| 3 companies | £16,667 | £83,333 | £30,000 | £1,950 |
| 4 companies | £12,500 | £62,500 | £30,000 | £1,950 |
Figures use the 2026 to 2027 rates and the standard marginal relief fraction. Your own cost depends on your profit and how many of your companies actually trade.
Does a dormant or holding company count?
A genuinely dormant company does not count. The rule is specific: a company is ignored for the associated companies limits if it has not carried on any trade or business at any time in the accounting period, which is set out in the corporation tax legislation. So a company you formed to protect a name, or one you have wound down and left with nothing happening in it, is out of the count. The catch is that a small amount of activity, some bank interest, a stray invoice, rent coming in, can be enough to make it a company carrying on a business, and then it counts again. Dormant here means genuinely doing nothing, not just quiet.
A pure holding company is treated more narrowly. A company whose only role is to hold shares in its subsidiaries and pass on their dividends can be left out as a passive holding company, but the conditions are tight: it must have no trade of its own, hold only shares in its 51 percent subsidiaries, take in nothing but exempt dividends, and pass them straight up, as the exclusions in HMRC's manual require. The moment that holding company also holds cash it is investing, owns a property, or runs any activity of its own, it stops being passive and starts counting. This is the trap owners fall into when they build a group: the holdco they were told was harmless quietly becomes an associated company because it does more than hold shares.
What to do if you have more than one company
Start by counting honestly, then decide whether the cost is worth acting on at all. For an owner whose companies make under about 100,000 pounds of profit combined, we would usually leave the structure alone, because the extra tax from the shared limits is smaller than the cost and disruption of merging or closing a company, and a clumsy reorganisation can cause more expense and risk than it saves. Above that level it earns a proper look, and the question becomes whether one company can be made dormant or two trades combined into one.
The practical steps are short.
- List every company you and your spouse control. Include the dormant ones and the holding companies, then mark which have actually traded in the period, because that is the number that counts, not the number on your Companies House record.
- Model the cost at your real profit. Use the table above, or ask us to run it, so you know whether you are looking at a few hundred pounds or a few thousand before you change anything.
- Make spare companies genuinely dormant. If a company only exists to hold a name or an old balance, stopping all activity takes it out of the count, but it has to be real dormancy, not a token trickle of income.
- Consider combining trades. Two small companies doing similar work under one owner are often simpler and cheaper as one, which removes the associated company entirely, though it needs checking against VAT, contracts and any reason you kept them apart.
- Get the interdependence question answered. If a spouse or relative owns a company that touches yours, have someone confirm whether it is caught before you assume either way.
None of this is about clever schemes. It is about counting correctly, knowing what the second company really costs, and fixing it only when the number justifies the effort. This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that runs corporation tax, group accounts and structure reviews for owner managed companies across London, and would rather tell you the cost is too small to bother with than sell you a reorganisation you do not need.