Since 1 April 2023, the corporation tax limits that set your rate are divided by the number of associated companies. Most groups count them wrong, and HMRC has been writing to those that do.
The headline rates look simple enough. Profits up to £50,000 are taxed at 19%. Profits above £250,000 are taxed at 25%. Between the two, marginal relief tapers the rate.
Those limits are not fixed. Each associated company divides them, and the effect is sharper than most finance teams expect.
How Associated Companies Change Your Rate
The division is by the total number of associated companies, your own included. Two companies halve the limits. Five cut them to a fifth.
- No associates: £50,000 and £250,000
- One associate: £25,000 and £125,000
- Three associates: £12,500 and £62,500
- Nine associates: £5,000 and £25,000
A company making £60,000 of profit pays 19% if it stands alone. Add three associates and the same profit meets the main rate.
There is a further sting inside the band. Profit between the lower and upper limits bears an effective marginal rate of 26.5%. Relief is withdrawn as profits rise. No published rate says 26.5%, which is exactly why it catches people out.
Overseas Group Companies Count
This is where UK subsidiaries get caught. Non-UK resident companies are included in the count.
A UK arm of a group with twenty companies worldwide does not get £250,000 of headroom. It gets somewhere near £12,500. The UK entity then pays the main rate on almost everything it earns.
Control is the test. Companies under the control of the same person are associated. They may trade separately and never transact with each other.
Dormant companies are excluded, and some passive holding companies are too. Both exclusions are narrower than they sound. They are a common source of error.
Quarterly Instalments Are Divided as Well
The associated company count does not only affect your rate. It also affects when you pay.
The £1.5 million threshold for quarterly instalment payments is divided the same way. So is the £20 million very large company threshold.
A UK subsidiary in a group of twenty sees its instalment threshold fall to around £75,000. Companies that are only modestly profitable get pulled into instalments without noticing. The first sign is often an interest charge.
HMRC Is Already Checking
HMRC has run a one-to-many campaign aimed at precisely this. Letters went to companies where its data suggested associated companies had not been declared on the CT600. Marginal relief had been claimed in error as a result.
Recipients were given 30 days to respond. Ignoring the letter invites a formal compliance check.
Late payment interest currently runs at base rate plus 4%. An understated liability across several open years accumulates quietly before anyone looks.
How Hamlyns Can Help
Counting associated companies is a judgement, not a lookup. We make that judgement and stand behind it.
We map the control relationships across your group, entities outside the UK included. Our team applies the dormant and passive exclusions properly rather than assuming them. The CT600 is prepared with the count disclosed and evidenced. Where earlier returns look wrong, we handle HMRC on your behalf.
If you hold more than one company, or your UK entity sits inside an overseas group, speak to the Hamlyns team. You can read more about our business tax services, or our piece on the audit threshold change.
