Associated company tax rules

A company currently pays corporation tax at 20% on taxable profits up to £300,000, and at 21% on profits above £1.5 million. Between these figures, the company pays tax at a marginal rate of 21.25%.

If two or more companies are controlled by the same person or group of persons, the amounts above are divided by the total number of companies. So if two companies are associated, they will pay 21% tax on half the threshold, namely at £750,000. This can lead to a significant increase in corporation tax compared with what they would pay if they were not associated.

Loans between companies where the controlling shareholders are connected by marriage or family relationships (parents, children, siblings) will normally lead to the companies being associated, so ownership, financing and operating arrangements may need review as a result of this change.