Advanced Taxation (UK) · Corporation tax: taxable total profits

Associated Companies and Short Accounting Periods in Corporation Tax

Updated 11 October 2026 · Fact-checked

The £50,000 and £250,000 limits for the small profits rate and marginal relief are divided by 1 plus the number of associated companies. They are also multiplied by months ÷ 12 if the accounting period is shorter than 12 months. Compare augmented profits with the reduced limits, then apply 19%, 25% or marginal relief.

Understand Associated Companies and Short Accounting Periods

A UK company's profits are taxed at the small profits rate of 19% or the main rate of 25%. Which rate applies depends on its augmented profits compared with two limits: a lower limit of £50,000 and an upper limit of £250,000. Between the limits, marginal relief eases the move from 19% to 25%.

These limits are annual figures for a full 12-month period for a company standing alone. Two things change them. The first is associated companies. The idea is that you should not split one business across several companies to use the lower rate several times. So the limits are shared. The second is a short accounting period. If the period is under 12 months, the limits are scaled down in proportion.

Companies are associated with each other if one controls the other, or if both are controlled by the same person or persons. This is a test of control, not of a 75% group. A company can be associated with another through common ownership by an individual, even with no parent company at all. Overseas companies count. A company that is dormant (not carrying on any trade or business) for the whole period is ignored. The test looks at the whole accounting period, so a company that was associated for only part of the period still counts. Where control comes through relatives, be careful: only count it if the scenario shows the companies are linked in a real commercial way. Otherwise assume the rights are not combined.

Do not confuse this with a group for group relief. Group relief needs a 75% relationship. Association only needs control, which is more than 50%. A company can be associated with another without being in its group relief group. The thresholds follow association.

Finally, remember the marginal relief formula uses the reduced limits. Augmented profits are taxable total profits plus exempt distributions received from non-group companies. Dividends from related 51% group companies are not added.

Key rules to remember

Reduced limits for associated companies: Limit ÷ (1 + number of associated companies); Applies to both £50,000 and £250,000. Count the other companies, not the company itself. Ignore companies that are dormant throughout the period.
Reduced limits for a short period: Limit × number of months ÷ 12; Use the accounting period length in months. Apportion to the nearest month, as the exam's supplementary instructions say.
Both adjustments together: Limit × months ÷ 12 ÷ (1 + number of associated companies); The order does not change the answer. Apply both to both limits.
Augmented profits: Augmented profits = taxable total profits + exempt distributions received from non-group companies; Use augmented profits to compare with the limits. Use taxable total profits for the tax charge.
Rate choice: Augmented profits ≤ lower limit: 19%. Augmented profits ≥ upper limit: 25%. Between: 25% less marginal relief; Use the reduced limits, not £50,000 and £250,000.
Marginal relief: (Upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits; The upper limit is the reduced limit. Deduct the relief from tax at 25% on taxable total profits.
Quarterly instalments threshold: £1,500,000 ÷ (1 + number of associated companies), × months ÷ 12 for a short period; The profit threshold for quarterly instalments is adjusted in the same way.

How to solve Associated Companies and Short Accounting Periods questions

Use this order for any question on associated companies or short accounting periods. It keeps the limits right before you do any tax calculation.

1Find the length of the accounting period in months. If it is under 12 months, note the fraction months ÷ 12.
2List the companies in the scenario. Identify which are controlled by the same person or persons, or by one another. Ignore dormant companies and decide how to treat any link made only through relatives.
3Count the associated companies, not including the company you are working on. Divide by 1 plus that number.
4Calculate the reduced lower and upper limits. Write both limits down with your working.
5Calculate augmented profits: taxable total profits plus exempt distributions from non-group companies.
6Compare augmented profits with the reduced limits. If at or below the lower limit, use 19%. If at or above the upper limit, use 25%.
7If between the limits, tax taxable total profits at 25% and deduct marginal relief using the reduced upper limit.
8State the corporation tax liability to the nearest £ and note any effect on quarterly instalments or planning advice if the requirement asks.

Quickest way: Divide first, then compare

When to use it: Use this when time is short and the question gives you the number of companies and the period length.

Write the divisor: 1 + associated companies.
Write the fraction: months ÷ 12.
Reduced lower limit = 50,000 × fraction ÷ divisor. Reduced upper limit = 250,000 × fraction ÷ divisor.
Place augmented profits against these two numbers.
If between, work out 25% × taxable total profits, then subtract (upper – augmented profits) × 0.015 × taxable total profits ÷ augmented profits.

Common mistakes in Associated Companies and Short Accounting Periods

Dividing the limits by the number of associated companies instead of by 1 plus that number.
Students forget that the company itself shares the limits.
Fix: Always write the divisor as 1 + N. With two associates, divide by 3.
Treating association as the same as being in a 75% group.
Group relief and the thresholds both involve related companies, so the tests blur.
Fix: For the thresholds, ask whether one company controls the other or one person controls both. A 75% holding is not needed.
Reducing only one of the two limits, or forgetting the short period reduction.
Students adjust the lower limit and then use £250,000 in the marginal relief formula.
Fix: Write both reduced limits first and use them everywhere. Check the period length at the start.
Using taxable total profits instead of augmented profits to test the limits.
Students overlook dividends from non-group companies.
Fix: Add exempt distributions from non-group companies to taxable total profits before comparing with the limits. Keep the dividends out of the tax charge itself.
Counting a dormant company or forgetting an overseas company.
Students count by the company's activity or location rather than by control.
Fix: Ignore companies that are dormant for the whole period. Include overseas companies under the same control.
Using the marginal relief fraction on the wrong profit figure.
The formula has TTP and augmented profits in the last term, and students swap them.
Fix: Use taxable total profits ÷ augmented profits. If there are no dividends, this equals 1.

Worked examples

Example 1

Hilltop Ltd has two associated companies. For the year ended 31 March 2026 it has taxable total profits of £60,000 and no dividend income. Calculate its corporation tax liability.

Show the solution

Period is 12 months, so no time adjustment is needed.
Divisor = 1 + 2 = 3.
Reduced lower limit = £50,000 ÷ 3 = £16,667. Reduced upper limit = £250,000 ÷ 3 = £83,333.
Augmented profits = £60,000. This 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

Example 2

Brook Ltd has one associated company. It prepares accounts for an 8-month period from 1 August 2025 to 31 March 2026. Taxable total profits are £70,000. It also received £10,000 of dividends from a non-group UK company, which are not in the taxable total profits. Calculate its corporation tax liability.

Show the solution

Divisor = 1 + 1 = 2. Time fraction = 8 ÷ 12.
Reduced lower limit = £50,000 × 8/12 ÷ 2 = £16,667. Reduced upper limit = £250,000 × 8/12 ÷ 2 = £83,333.
Augmented profits = £70,000 + £10,000 = £80,000. This is between the two limits, so marginal relief applies.
Tax at 25% on taxable total profits = £70,000 × 25% = £17,500.
Marginal relief = (£83,333 – £80,000) × 3/200 × £70,000 ÷ £80,000 = £3,333 × 0.015 × 0.875 = £44 (to the nearest £).
Corporation tax = £17,500 – £44 = £17,456.

Answer: £17,456

Exam tips

Do the limit adjustment as your first working, with a clear label. Marks are often given for the reduced limits even if a later figure is wrong.
Read the scenario for control links. A common test is a shareholder who controls several companies, some of them dormant or overseas.
Check for dividends from non-group companies in the question. They affect the limits test but not the taxable total profits.
In a short period question, check whether the accounting period starts or ends in the middle of a month, and apportion to the nearest month as the supplementary instructions require.
If asked for advice, mention that the lower limit is shared, so extra companies under common control reduce the benefit of the 19% rate.

Practice questions from Corporation tax: taxable total profits

Associated Companies and Short Accounting Periods 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

Associated Companies and Short Accounting Periods: frequently asked questions

What is an associated company for corporation tax limits?

Two companies are associated if one controls the other, or if both are controlled by the same person or persons. This applies at any time in the accounting period. Dormant companies are ignored, and overseas companies count.

How do I time apportion the profit limits for a short accounting period?

Multiply both the lower and upper limits by months ÷ 12. For example, for a 6-month period the limits become £25,000 and £125,000 before any associated company adjustment. Then divide by 1 plus the number of associated companies if relevant.

What is the difference between an associated company and a group company?

An associated company is based on control, such as common control by a person. A group for group relief needs a 75% relationship. A company can be associated without being in the same group relief group, so the two tests should be kept separate.

Do associated companies affect quarterly instalment payments?

Yes. The £1,500,000 profit threshold for quarterly instalments is also divided by 1 plus the number of associated companies. It is also reduced for a short accounting period.