Advanced Taxation (UK) · Corporation tax: the effect of a group structure

Group Relationships and Corporation Tax Thresholds for ATX

Updated 11 October 2026 · Fact-checked

Companies under common control are associated. You divide the £50,000 lower limit and £250,000 upper limit, and the £1,500,000 instalment threshold, by the number of associated companies (including the company itself). This affects the small profits rate, marginal relief and quarterly instalments. Group relief uses a separate 75% test.

Understand Group Relationships and Corporation Tax Thresholds

Corporation tax has two rates: a small profits rate of 19% and a main rate of 25%. Profits up to the lower limit of £50,000 bear 19%. Profits above the upper limit of £250,000 bear 25%. Between the limits, marginal relief gives a gradual increase. These limits are for a 12-month accounting period.

The limits are for one company. If a company controls others, or is under common control with them, it could split profits to use many £50,000 bands. The associated company rules stop this. You divide the limits by the number of associated companies.

Companies are associated when one controls the other, or both are controlled by a third party (a company or an individual). Control is usually through more than 50% of the ordinary share capital or voting power. This is the 51% test. Count the company being computed as well. So a company with two associates has three associated companies and divides the limits by three.

The 51% test is different from the 75% group test used for group relief. For group relief, companies are in a group when one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third. Do not mix them up. A 60% subsidiary is associated, but it is not in a 75% group for group relief.

The same divisor applies to the quarterly instalment profit threshold of £1,500,000. A company whose profits exceed the divided threshold may be a large company and pay by instalments. Always check the accounting period length too. Short periods time-apportion the limits, and then you divide by the number of associated companies.

Key rules to remember

Adjusted lower limit: £50,000 ÷ number of associated companies (including the company itself); Multiply by months ÷ 12 for a short accounting period.
Adjusted upper limit: £250,000 ÷ number of associated companies (including the company itself); Time-apportion for a short accounting period.
Marginal relief: (Upper limit – Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits; Use adjusted limits. Augmented profits = taxable total profits plus exempt distributions received from non-group companies. Applies when augmented profits lie between the limits.
Corporation tax rates: Small profits rate 19%; main rate 25%; Financial years 2023, 2024 and 2025.
Quarterly instalment profit threshold: £1,500,000 ÷ number of associated companies; Apply the same divisor. Time-apportion for short periods.
Association test (51%): Control through more than 50% of ordinary share capital or voting power, directly or through a common controller; Used for the limits.
Group relief test (75%): 75% subsidiary relationship, directly or indirectly; Used for group relief. It is different from the association test.

How to solve Group Relationships and Corporation Tax Thresholds questions

Use this order for any question on limits, marginal relief or instalments in a group.

1Read the scenario and list all companies and who owns them. Include individuals who control companies.
2Test control for association: more than 50% of shares or votes. Count the company you are computing as well.
3Divide £50,000, £250,000 and £1,500,000 by the number of associated companies. Time-apportion first if the period is short.
4Work out augmented profits (taxable total profits plus exempt distributions from non-group companies) and compare with the adjusted limits.
5If profits are below the lower limit, use 19%. If above the upper limit, use 25%. If between, compute at 25% and deduct marginal relief.
6If the question asks about instalments, compare profits with the adjusted threshold and state the consequences.
7State separately whether companies are in a 75% group if group relief is asked about.

Quickest way: Count, divide, compare

When to use it: Use this when time is short and the question gives profits for one company in a structure.

Count associated companies, including this one.
Write the adjusted limits straight away: £50,000 ÷ n and £250,000 ÷ n.
Place augmented profits against the limits.
Choose the rate or compute marginal relief with the adjusted upper limit.
Divide £1,500,000 by n to check large company status.

Common mistakes in Group Relationships and Corporation Tax Thresholds

Dividing the limits by the number of associates and forgetting to count the company itself.
The word 'associate' suggests other companies only.
Fix: Count every company in the association, including the one you are computing. Two associates means three companies and a divisor of three.
Using the 75% test to decide association.
The 75% group test is familiar from group relief.
Fix: For the limits, use control of more than 50%. Use 75% only for group relief and similar group reliefs.
Using the full £250,000 in the marginal relief formula.
Students adjust the limits for the rate decision but not in the formula.
Fix: Put the adjusted upper limit in the formula. Do the same for the lower limit.
Using taxable total profits instead of augmented profits to compare with the limits.
Taxable total profits are the figure just calculated.
Fix: Add exempt distributions received from non-group companies first. Dividends from group companies are not added.
Ignoring short accounting periods.
The divisor gets all the attention.
Fix: Multiply the limits by months ÷ 12 as well, then divide by the number of associated companies.
Counting dormant or non-trading companies as out of the count without checking.
Students assume only trading companies matter.
Fix: Follow the question facts. Do not exclude a company unless the scenario says it is excluded, for example a dormant company.

Worked examples

Example 1

X Ltd has taxable total profits of £90,000 for the year to 31 March 2026 and no exempt distributions. X Ltd owns 60% of Y Ltd and 80% of Z Ltd. Calculate X Ltd's corporation tax liability.

Show the solution

X Ltd controls Y Ltd and Z Ltd (more than 50%), so there are 3 associated companies.
Adjusted lower limit = £50,000 ÷ 3 = £16,667 (rounded).
Adjusted upper limit = £250,000 ÷ 3 = £83,333 (rounded).
Profits of £90,000 exceed the adjusted upper limit, so there is no marginal relief.
Tax = £90,000 × 25% = £22,500.

Answer: Corporation tax is £22,500, charged at the main rate.

Example 2

A Ltd has taxable total profits of £120,000 for the year to 31 December 2025. Its only associate is B Ltd, which A Ltd owns 100%. No exempt distributions. Calculate the corporation tax, and say whether A Ltd must pay by instalments if its profits were instead £800,000 with B Ltd as its only associate.

Show the solution

There are 2 associated companies.
Adjusted lower limit = £50,000 ÷ 2 = £25,000. Adjusted upper limit = £250,000 ÷ 2 = £125,000.
Profits of £120,000 lie between the limits, so marginal relief applies.
Tax at 25% = £120,000 × 25% = £30,000.
Marginal relief = (£125,000 – £120,000) × 3/200 × £120,000 ÷ £120,000 = £5,000 × 3/200 = £75.
Corporation tax = £30,000 – £75 = £29,925.
Instalment threshold = £1,500,000 ÷ 2 = £750,000.
Profits of £800,000 exceed £750,000, so the company is potentially large and would be expected to pay by quarterly instalments, subject to the other conditions.

Answer: Corporation tax is £29,925. With profits of £800,000 the company exceeds the £750,000 adjusted threshold, so instalments are potentially required.

Exam tips

Draw a quick ownership diagram first. It shows association and 75% groups at a glance.
Write the adjusted limits clearly. Marks are given for the divisor and the adjusted figures even if later arithmetic slips.
Read the period length. A short period combined with associates is a favourite trap.
When asked to advise, state both tests: more than 50% for the limits and 75% for group relief. Keep the two apart.
Show the marginal relief formula with your numbers. Method marks are available.

Practice questions from Corporation tax: the effect of a group structure

Group Relationships and Corporation Tax Thresholds in other exams

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

ACCA Applied SkillsAssociated Companies and Corporation Tax Limits

Group Relationships and Corporation Tax Thresholds: frequently asked questions

What is the difference between a 51% group and a 75% group?

The 51% test (control of more than 50%) decides associated companies for dividing the profit limits. The 75% test decides whether companies are a group for group relief. A 60% subsidiary is associated but not in a 75% group.

Do I count the company itself as an associated company?

Yes. When you divide the limits, the divisor is the total number of associated companies including the company you are computing. A company with two associates divides by three.

How does marginal relief work with associated companies?

Use the adjusted lower and upper limits. If augmented profits fall between them, compute tax at 25% and deduct (adjusted upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.

Do the instalment rules also change with associated companies?

Yes. The £1,500,000 profit threshold is divided by the number of associated companies. A company with profits above the divided threshold may need to pay by quarterly instalments.