The unexpected tax burden of associated companies

If you have a controlling interest in several companies, recent changes in UK tax rules could mean higher Corporation Tax (CT) bills, more frequent CT payments and increased administrative hassle.

These changes might come as an unwelcome surprise that affects your cash flow and the financial stability of your business.

With the right planning, you can potentially avoid the pitfalls and keep your finances on track.

We work closely with business owners to identify where changes in tax rules may apply, assess the risks and help to put practical, tailored solutions in place.

Whether it is forecasting payment schedules, assessing group structures, or providing ongoing compliance support, our team is here to ensure you are fully informed and fully prepared.

What has changed?

Since April 2023, there have been three rates of UK CT.

These are 19 per cent for companies with profits under £50,000, 25 per cent for companies with profits over £250,000 and a marginal rate for profits in between.

Usually, these rates apply to each standalone company.

However, if you control two or more companies, either alone or with others acting together, the associated company rules could apply.

The definition of control is fairly wide but broadly applies to a shareholding of 51 per cent or more.

For tax purposes, HMRC essentially treats associated companies as a group.

This means that the profit thresholds used to decide which tax rate applies to each company are shared and split between all the companies that are considered to be associated with each other.

In addition to this, the profit thresholds applicable to the corporation tax quarterly payment regime are also reduced by the number of associated companies.

We recently posted an article that breaks down this regime in more detail, so be sure to read that to learn more.

Even if your individual companies look small, the impact of the associated company rules may push some of them into paying corporation tax at the higher 25 per cent rate or into making quarterly tax payments sooner than expected.

If you run multiple companies under common control, these rules can lead to higher tax bills and more frequent payments.

Understanding how these shared limits work will help you plan better and avoid surprises.

What could this mean for my business?

The associated company rules can catch businesses off guard with the true impact of the changes only being felt when the first unexpected tax bill arrives, or quarterly instalment demands are received.

Even if your company looks small on its own, any associated company could mean more profits are subject to CT at a higher rate.

Not only will a higher rate of CT have an impact on your cash flow, but entering the quarterly payments regime will mean that you will have to set aside cash more regularly, which can be tough if you’re used to paying tax annually.

Taking an example, if your company has a December 2025 year-end, the CT payment would normally be due by 1 October 2026.

However, if projected profit levels and the impact of the associated company rules trigger quarterly payments for that year, instalments will be due as early as 14 July 2025, months before your accounts for that year might be finalised.

This can lead to unexpected cash demands and, if instalments are missed or late because you’re unaware of them, can also incur costly interest charges.

More frequent payments and complex rules require more careful financial forecasting, additional calculations and professional advice.

I think my business might be affected – What should I do?

It’s crucial to understand how the associated company rules apply to your business to allow you to prepare accordingly.

This may involve reviewing your business structure as merging companies or restructuring your interests may simplify the CT position and reduce your payments.

You should be aware that changes to company ownership or accounting periods can accidentally trigger higher tax rates or quarterly payment obligations if not carefully planned, so seeking formal advice will be key.

There may be tax reliefs available to you, so be sure to utilise them if they are available.

If you are affected by these rules, inflation or small profit increases could push you over the thresholds even if your business performance hasn’t changed very much.

Tax reliefs can help ensure you are paying the right amount of CT.

To assist with this, you should model your cash flow and payments to work out exactly when tax instalments will be due and how much will be payable, so you can budget effectively.

Alongside this, you can consider the impact of company activities.

It may be that one of your companies is making a loss, but the other is making a profit.

While it isn’t possible to offset profits and losses between companies held separately, if you have similar activities, it may be possible to move income streams around or consider the use of service charging arrangements to achieve a better result.

What help is there with managing tax for associated companies?

We can work with you to help you understand exactly how the rules affect you and your business.

We can assist with financial modelling to compare your current structure to alternatives, so you can see the real impact on tax payments and cash flow.

Additionally, we can advise on whether a merger or restructure makes sense, including the costs, risks and commercial considerations beyond tax.

The aim of this advice is to help you implement simpler solutions if restructuring isn’t right for you and to keep your compliance manageable and costs down.

Speak to our team today for tax planning that works for you!

Stephanie Hurst