Taxation (UK) · The comprehensive computation of corporation tax liability

Associated Companies and Corporation Tax Limit Adjustments

Updated 11 October 2026 · Fact-checked

Companies are associated when one controls the other, or both are controlled by the same person or persons. The lower limit (£50,000) and upper limit (£250,000) are divided by the number of associated companies, including the company itself. They are also time-apportioned for accounting periods shorter than 12 months.

Understand Associated Companies and Limit Adjustments

Corporation tax has two rates. The small profits rate is 19% and the main rate is 25%. Marginal relief applies between the lower limit of £50,000 and the upper limit of £250,000. The limits are set for a company on its own for a full 12-month period.

If the limits were not adjusted, a business owner could split one business across ten companies. Each company would then use its own £50,000 band at 19%. To stop this, the limits are shared between associated companies.

In plain words, two companies are associated if one controls the other, or if the same person or persons control both. The test applies at any time in the accounting period. Control is usually about holding more than half the voting power or share capital, or entitlement to more than half the assets on a winding up. In TX-UK, think of a parent with its subsidiaries, or one individual who owns a majority of several companies.

The number of associates is used to divide both limits. With one associate (two companies in all), the limits become £25,000 and £125,000. With three companies in all, they become £16,667 and £83,333. Remember that the company being tested counts itself.

The limits are also scaled for a short accounting period. A six-month period has limits of 6/12 of the normal figures. Both adjustments can apply together. You then use the adjusted limits to find the rate, or the marginal relief, on the company's profits.

Key rules to remember

Corporation tax rates (financial years 2023 to 2025): Small profits rate 19%; main rate 25%; Given in the exam tax tables. The small profits rate applies if augmented profits do not exceed the lower limit.
Normal limits: Lower limit £50,000; upper limit £250,000; These apply to a single company with a 12-month period.
Adjusted limits: Adjusted limit = limit ÷ total number of associated companies (including the company itself) × (months in period ÷ 12); Count the company being tested as one of the companies. Equivalently, divide by (1 + number of other associated companies).
Marginal relief: (Upper limit – augmented profits) × standard fraction × taxable total profits ÷ augmented profits; The standard fraction is 3/200. Use the adjusted upper limit. It is deducted from tax at 25% on taxable total profits.
Quarterly instalments threshold: Profit threshold £1,500,000; The exam tax tables give only the £1,500,000 figure. As a rule of law, the threshold is also divided by the number of associated companies and time-apportioned for a short period. Mention this only if the question asks about instalments.

How to solve Associated Companies and Limit Adjustments questions

Work through the same sequence on any question. Do the limit adjustment before you pick the rate.

1List every company in the question and decide which are associated. Look for control by one company, or by the same person or persons.
2Count the total number of associated companies, including the company you are working on. Ignore any company that is not associated.
3Work out the length of the accounting period in months. A period of 12 months needs no time adjustment.
4Adjust the lower and upper limits: divide by the number of companies, then multiply by months ÷ 12.
5Calculate augmented profits: taxable total profits plus exempt dividends received from non-group companies.
6Compare augmented profits with the adjusted limits. If they are at or below the lower limit, use 19%. If above the upper limit, use 25%. If between, use 25% and deduct marginal relief.
7Show the working for marginal relief using the adjusted upper limit, and state the final tax liability.

Quickest way: Divide first, then compare

When to use it: Use this in Section A and OT case questions where you only need the rate or a limit figure.

Write the count of companies and the number of months.
Calculate the new lower and upper limits straight away.
Check where augmented profits sit against them. Outside the band, the answer is 19% or 25% with no marginal relief.
Only compute marginal relief if profits fall inside the band.

Common mistakes in Associated Companies and Limit Adjustments

Dividing the limits by the number of other companies instead of the total number.
The question says 'two associated companies' and you divide by one, or you count the company twice.
Fix: Count every company in the associated set, including the one being taxed. With two companies in all, divide by 2.
Counting a company that is not associated.
A company owned by an unconnected investor looks similar to a subsidiary on a diagram.
Fix: Check for control by one company or by the same person or persons. A minority shareholding with no control does not make companies associated.
Forgetting to time-apportion for a short period.
You focus on the associate count and overlook the period dates.
Fix: Work out the months in the period first. Multiply both limits by months ÷ 12.
Using unadjusted limits in the marginal relief formula.
You adjust the limits for the rate test but copy £250,000 into the formula.
Fix: Use the adjusted upper limit in the marginal relief formula. Do this every time.
Using taxable total profits instead of augmented profits to test the limits.
Dividends from outside the group are easy to leave out.
Fix: Add exempt dividends received from non-group companies to taxable total profits. Use this figure for the comparison.

Worked examples

Example 1

Alpha Ltd has a 12-month accounting period. It controls Beta Ltd and Gamma Ltd. Alpha Ltd has taxable total profits of £90,000 and no dividend income. Calculate Alpha Ltd's corporation tax liability.

Show the solution

The three companies are associated, so there are 3 in total.
Lower limit = £50,000 ÷ 3 = £16,667. Upper limit = £250,000 ÷ 3 = £83,333.
Augmented profits are £90,000, which is above the adjusted upper limit of £83,333.
The main rate of 25% applies, with no marginal relief.
Tax = £90,000 × 25% = £22,500.

Answer: Corporation tax liability: £22,500.

Example 2

Delta Ltd prepares accounts for the 6 months to 30 September. It has one associated company. Delta Ltd's taxable total profits are £60,000 and it received no dividends. Calculate its corporation tax liability.

Show the solution

There are 2 companies in total. The period is 6 months.
Lower limit = £50,000 ÷ 2 × 6/12 = £12,500. Upper limit = £250,000 ÷ 2 × 6/12 = £62,500.
Augmented profits of £60,000 are between £12,500 and £62,500, so marginal relief applies.
Tax at 25% = £60,000 × 25% = £15,000.
Marginal relief = (£62,500 – £60,000) × 3/200 × £60,000 ÷ £60,000 = £2,500 × 3/200 = £37.50.
Tax liability = £15,000 – £37.50 = £14,962.50, which is £14,963 to the nearest £.

Answer: Corporation tax liability: £14,963 (£14,962.50 before rounding to the nearest £).

Exam tips

Draw a quick diagram of the share ownership. It makes it easier to see which companies are associated.
Do the limit adjustment as the first line of your working so you can pick up marks even if later steps go wrong.
In Section C, show the adjusted limits and the marginal relief formula with figures. All workings must be shown.
In objective questions, read the period dates carefully. A period that is not 12 months is a common trap.
Check whether dividends are received from outside the group. If so, add them to find augmented profits.

Practice questions from The comprehensive computation of corporation tax liability

Associated Companies and Limit Adjustments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalAssociated Companies and Short Accounting Periods

Associated Companies and Limit Adjustments: frequently asked questions

What is an associated company in TX-UK?

Two companies are associated if one controls the other, or if the same person or persons control both. The test applies at any time in the accounting period. Associated companies share the profit limits.

How do I divide the corporation tax limits?

Divide the £50,000 lower limit and £250,000 upper limit by the total number of associated companies, including the company you are working on. For example, with two companies the limits are £25,000 and £125,000.

How do I adjust the limits for a short accounting period?

Multiply each limit by the number of months in the period over 12. A six-month period uses half of each limit. If the company also has associates, divide by the number of companies as well.

Do I use taxable total profits or augmented profits to compare with the limits?

Use augmented profits. These are taxable total profits plus exempt dividends received from non-group companies. If there are no such dividends, the two figures are the same.