A company is an associated company of another company where, if at any time in the preceding 12 months:
- one company has control of the other company
- both companies are under control of the same person or persons
This includes all worldwide companies, regardless of the tax residence of the company.
A company is not treated as associated if:
- it is dormant
- it is a passive holding company (where a company only receives dividends from its subsidiaries and pays these to shareholders, and the company receives no other income or expenses)
- businesses are under common control but the relationship between one or more companies is not one of ‘substantial commercial interdependence’, they will not be deemed as associated
To determine control, you will need to look at the shares held by a person and their associates (spouse, civil partner, lineal descendant, ancestor, business partner and sibling).
A company owned by Mr A and a company owned by Mrs A (spouse) may be associated unless it can be demonstrated that there is no substantial commercial interdependence. Examples of substantial commercial interdependence include:
- Financial interdependence – extent of financial support given
- Economic interdependence – companies seek to realise the same economic objective, the activities of one benefit the other, or common customers
- Organisational interdependence – businesses have common management/employees, premises or equipment
Control by minimum controlling combination
For companies to be associated companies, there must be the same ‘minimum controlling combination’. For example:
| A Ltd | B Ltd | |
| Mr A | 60% | 35% |
| Mrs B | 25% | 35% |
| Others (unrelated) | 15% | 30% |
Mr A and Mrs B can together control A Ltd and B Ltd. However, Mr A controls A Ltd on his own and is, therefore, the ‘minimum controlling combination’. The minimum controlling combination of B Ltd is Mr A and Mrs B. Since the companies do not have the same minimum controlling combination, they are not related.
Overall, the associated company rules add a layer of complexity that needs to be considered based on the fact pattern of any given scenario.
These complex rules for the classification and calculation of associated companies can be difficult to establish so it is important to seek advice when necessary.
Corporation tax rate from 1st April 2023
| Profit banding | Corporation Tax rate |
| Under £50,000 | 19% small profits rate |
| Over £250,000 | 25% main tax rate |
| Between £50,000 and £250,000 | 25% main tax rate less marginal relief |
If a company is associated with one or more companies, the profit bands for determining which corporation tax rate is applicable, and the upper profit limited used in the marginal relief calculation are apportioned by dividing them by the number of associated companies.
Example
For a company whose profits are £80,000, marginal relief would apply and their corporation tax liability is found by multiplying their profits by 25% and then deducting marginal relief:
Taxable total profits - £80,000 × 25% (the main rate) =£20,000
Less: marginal relief (3/200 X £250,000 - £80,000)= £2,550
Tax due = £17,450
Where the company is owned by Mr A, who has a controlling interest in another two companies, there are three associated companies.
The small profits banding will be £50,000/3 = £16,667
The main rate profits banding will be £250,000/3 = £83,333
Taxable total profits - £80,000 × 25% (the main rate) = £20,000
Less: marginal relief (3/200 X £83,333 - £80,000) = £50
Tax due =£19,950
Quarterly corporation tax payments
A large company with taxable profits of at least £1.5 million is required to make quarterly corporation tax payments. This profit threshold is divided by the number of associated companies at the end of the last accounting period.
Accelerated instalment payments
A very large company with taxable profits of at least £20 million is required to make accelerated instalment payments. Again, the profit threshold is divided by the number of associated companies at the end of the last accounting period.
How TaxAssist Accountants can help
TaxAssist Accountants are experienced at working with limited companies. If you’re not sure if the associated company rules affect you speak to our advisers. Call TaxAssist Accountants today on 0800 0523 555or use our contact form and we'll be in touch.
Date published 17 Jan 2024 | Last updated 17 Jan 2024
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circ*mstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsem*nt, we will accept no responsibility for any financial loss incurred.
Catherine Heinen, FCCA
Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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