Two companies under common control share the same tax bands. Here is exactly what counts as control, and what does not.
Zazentax Corporation Tax Series · Updated July 2026 · Reading time: about 6 minutes
For accounting periods beginning on or after 1 April 2023, a company cannot work out its corporation tax rate in isolation. It first has to establish whether it has any associated companies, because the £50,000 and £250,000 profit thresholds that decide between the small profits rate, marginal relief, and the main rate are divided between every associated company in the group. Two companies with identical trading profits can end up on completely different rates purely because of who else they are connected to.
The Control Test
Companies are associated with each other if one company controls another, or if both are controlled by the same person or persons. Control means holding more than 50% of any one of four things: voting power, share capital or issued share capital, entitlement to distributable profits, or entitlement to assets on a winding up. Only one of these four tests needs to be met; a company can be controlled through voting rights alone even if its shareholding percentage is much lower.
The definition of a person is deliberately wide. It includes a company, an individual, several individuals acting together, trustees of a trust, or partners in a partnership. So if one individual personally owns more than 50% of two otherwise unconnected companies, those two companies are associated with each other even though neither owns any shares in the other.
Key point: More than 50% is required. A holding of exactly 50%, with nothing else pushing it over that line, does not give control, and the company is not associated on that test alone.
A Worked Example
Farah owns Halcyon Ltd outright and is checking which other companies count as associated with it.
| Company | Farah’s connection to it |
| Kestrel Ltd | Farah owns exactly 50% of the ordinary shares, with no other rights attached. |
| Merlin Ltd | Farah owns 35% of the shares, but those shares entitle her to 55% of distributable profits. |
| Osprey Ltd | Wholly owned by Halcyon Ltd itself. |
| Falcon Ltd | Halcyon Ltd owns only 8% of the shares, but that stake carries 52% of the voting power. |
Kestrel Ltd fails every test: 50% is not more than 50%, so it is not controlled and is not associated with Halcyon Ltd. Merlin Ltd passes the distributable profits test even though the shareholding itself is only 35%, so it is associated. Osprey Ltd is a straightforward subsidiary and is associated. Falcon Ltd passes on voting power alone, despite a modest 8% shareholding, so it is also associated.
Halcyon Ltd therefore has three associated companies, Merlin Ltd, Osprey Ltd, and Falcon Ltd, plus itself, for a total of four companies sharing the profit thresholds.
Why This Changes the Tax Bill
Halcyon Ltd has taxable total profits of £45,000 for the year, with no dividend income, so augmented profits are also £45,000. Considered entirely on its own, £45,000 sits below the standard £50,000 threshold, so Halcyon Ltd would pay the small profits rate of 19%, a liability of £8,550.
But Halcyon Ltd is not on its own. With four total associated companies, the thresholds are divided by four: the upper limit becomes £250,000 divided by 4, which is £62,500, and the lower limit becomes £50,000 divided by 4, which is £12,500. £45,000 now sits between those two figures, so marginal relief applies instead of the small profits rate.
Corporation tax starts at the main rate: £45,000 multiplied by 25%, which equals £11,250. Marginal relief is then 3 divided by 200, multiplied by £62,500 minus £45,000, which is £17,500, giving a relief of £262.50. The final liability is £11,250 minus £262.50, which equals £10,987.50.
Action required: That is £2,437.50 more tax than the standalone 19% figure, on exactly the same trading profit. Before assuming your company qualifies for the small profits rate, map out every shareholder and company connected to it and test each one against all four control measures, not just shareholding percentage.
Key Takeaways
- Companies are associated if one controls another, or both are controlled by the same person or persons, tested against voting power, share capital, distributable profits, or assets on a winding up.
- Only one of the four control tests needs to be met, so a low shareholding can still mean control through voting rights or profit entitlement.
- A holding of exactly 50% does not amount to control on its own.
- The £50,000 and £250,000 thresholds are divided by the total number of associated companies, including the company itself, which can move a company from the small profits rate straight into marginal relief or the main rate.
- The rules apply from accounting periods beginning on or after 1 April 2023 onwards; earlier periods used a single flat rate and did not need this test.
Not Sure Whether Another Company Is Associated With Yours?
Zazentax maps the shareholdings, voting rights and profit entitlements behind your company, tests each connection against all four control measures, and confirms how many ways your thresholds are split.
