Taxation (UK) · The effect of a group corporate structure for corporation tax purposes

Associated Companies and Corporation Tax Limits for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

Associated companies are companies under common control, usually through more than 50% ownership. You divide the £50,000 lower limit, £250,000 upper limit and £1,500,000 instalment threshold by the number of associated companies, including the company itself. Then apply the small profits rate, marginal relief or the main rate.

Understand Associated Companies and Corporation Tax Limits

Corporation tax has a small profits rate of 19% and a main rate of 25%. The rate you use depends on the company's augmented profits compared with two limits: a lower limit of £50,000 and an upper limit of £250,000. Between the limits, marginal relief applies.

A group could try to cut tax by splitting one business into many companies, each with profits under £50,000. The associated companies rule stops this. The limits are divided by the number of associated companies.

Companies are associated with each other if one controls the other, or both are controlled by the same person or persons. In TX-UK, think of it as a 51% group test: a company is associated with another if it has more than 50% control of it, or both are under the same control. Control is normally through shares and voting power.

You count the company you are computing tax for, plus every associated company. So a company with two associates has three in total, and the limits are divided by 3. The £1,500,000 profit threshold for quarterly instalments is divided the same way.

The limits are also reduced for short accounting periods, by multiplying by the number of months ÷ 12. Do the associated company division first, then the time adjustment if both apply.

Key rules to remember

Adjusted lower limit: £50,000 ÷ number of associated companies (including the company itself); Time-apportion too if the accounting period is under 12 months.
Adjusted upper limit: £250,000 ÷ number of associated companies (including the company itself); Augmented profits at or above this limit means the main rate of 25% on all taxable total profits.
Marginal relief: (Upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits; Use the adjusted upper limit. Deduct the relief from tax at 25%.
Quarterly instalment threshold: £1,500,000 ÷ number of associated companies; Profits above this are 'large' for instalment purposes. Check the exact rules in the topic on instalments.
Rate by profit level: Augmented profits ≤ lower limit: 19%. ≥ upper limit: 25%. Between: 25% less marginal relief; Augmented profits = taxable total profits plus exempt dividends received from non-group companies.

How to solve Associated Companies and Corporation Tax Limits questions

Follow this order for any question that mentions other companies under common control.

1Identify which companies are associated: the company itself plus every company under common control (more than 50%). Count them all.
2Check for companies to exclude, such as dormant companies, which the question may state do not count.
3Divide £50,000 and £250,000 by the number of associated companies.
4If the accounting period is shorter than 12 months, multiply the adjusted limits by months ÷ 12.
5Compute augmented profits: taxable total profits plus exempt dividends from non-group companies.
6Compare augmented profits with the adjusted limits to decide: 19%, 25%, or marginal relief.
7If between the limits, compute tax at 25% and deduct marginal relief using the adjusted upper limit.
8State the final corporation tax liability.

Quickest way: Count, divide, compare

When to use it: Objective test questions asking which rate applies or what the adjusted limit is.

Write down the number of companies, including the one in the question.
Divide £50,000 and £250,000 by that number on the spot.
Compare augmented profits with the two figures.
Below the lower: 19% of taxable total profits. Above the upper: 25%. Otherwise do the marginal relief formula.

Common mistakes in Associated Companies and Corporation Tax Limits

Dividing by the number of other companies, not the total including the company itself.
The question says 'the company has two associated companies', so students divide by 2.
Fix: Add one for the company being taxed. Two associates means divide by 3.
Using the unadjusted £250,000 in the marginal relief formula.
Students adjust the limits to choose the rate, then revert to the standard figures.
Fix: Use the adjusted upper limit in every step, including the formula.
Comparing taxable total profits, not augmented profits, with the limits.
Dividends are easily forgotten because they are not in taxable total profits.
Fix: Add exempt dividends from non-group companies to get augmented profits for the comparison and the formula's denominator.
Forgetting to adjust for a short accounting period as well.
Students focus on the associated company count.
Fix: Check the period length. Multiply the already-divided limits by months ÷ 12.
Counting a company that is not associated, such as a 50% holding.
Students read 50% as control.
Fix: Control needs more than 50% of shares and votes, or common control by the same person or persons.

Worked examples

Example 1

Bond Ltd has taxable total profits of £60,000 for the year ended 31 March 2026. It has no dividend income. It controls two other companies, so there are three associated companies in total. Calculate its corporation tax liability.

Show the solution

Number of associated companies: 3.
Adjusted lower limit: £50,000 ÷ 3 = £16,667 (rounded).
Adjusted upper limit: £250,000 ÷ 3 = £83,333 (rounded).
Augmented profits are £60,000, which is between £16,667 and £83,333, so marginal relief applies.
Tax at 25%: £60,000 × 25% = £15,000.
Marginal relief: (£83,333 – £60,000) × 3/200 × £60,000 ÷ £60,000 = £23,333 × 0.015 = £350.
Corporation tax: £15,000 – £350 = £14,650.

Answer: £14,650 (using exact limits of £250,000 ÷ 3 gives the same result to the nearest pound).

Example 2

Hart Ltd has one associated company. For the 12 months to 31 December 2025 it has taxable total profits of £110,000 and receives exempt dividends of £10,000 from unconnected UK companies. Calculate its corporation tax liability.

Show the solution

Associated companies: 2 (Hart Ltd and one other).
Adjusted lower limit: £50,000 ÷ 2 = £25,000. Adjusted upper limit: £250,000 ÷ 2 = £125,000.
Augmented profits: £110,000 + £10,000 = £120,000.
£120,000 is between £25,000 and £125,000, so marginal relief applies.
Tax at 25%: £110,000 × 25% = £27,500.
Marginal relief: (£125,000 – £120,000) × 3/200 × £110,000 ÷ £120,000 = £5,000 × 0.015 × 0.91667 = £68.75.
Corporation tax: £27,500 – £68.75 = £27,431 (rounded).

Answer: £27,431 (£27,431.25 before rounding).

Exam tips

Read the question for how many companies there are. Check whether 'associated' numbers include or exclude the company itself.
Show the adjusted limits clearly in written answers. Marks are given for them even if later figures are wrong.
In objective tests, test the profit level against the adjusted limits first. Many questions need no marginal relief calculation.
Always add exempt dividends to get augmented profits, but tax only the taxable total profits.
The rates, limits and the 3/200 fraction are given in the tax tables in the exam. You still must remember how to apply them.

Practice questions from The effect of a group corporate structure for corporation tax purposes

Associated Companies and Corporation Tax Limits 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 Corporation Tax Limits: frequently asked questions

What is an associated company for corporation tax in TX-UK?

A company is associated with another if one controls the other, or both are controlled by the same person or persons. In TX-UK this generally means control of more than 50%. Count the company itself as well.

How do associated companies affect the corporation tax limits?

The £50,000 and £250,000 limits are divided by the number of associated companies, including the company being taxed. The £1,500,000 quarterly instalment threshold is divided the same way. This reduces the range where the small profits rate and marginal relief apply.

Do I divide by the number of associates or the number of companies?

Divide by the total number of companies, including the one you are computing tax for. If a company has three associates, divide by four.

Do the limits change for a short accounting period?

Yes. After dividing by the number of associated companies, multiply the limits by the number of months in the period ÷ 12.