Increase to Corporation Tax Rate from April 2023 – Beware Associated Companies

The Finance Bill 2021 (2) received royal assent on 10 June 2021 which brings the increase in the corporation tax rate to 25% into legislation.

The Finance Bill 2021 (2) received royal assent on 10 June 2021 which brings the increase in the corporation tax rate to 25% into legislation.

Company profits will be charged at 25% once over £250,000 per annum but will remain at 19% for annual profits of less than £50,000. In between those two limits the 25% rate will be reduced by marginal relief, meaning profits between £50,000 and £250,000 will be taxed on a sliding scale between the two rates.

Associated Companies

If the company in question has any associated companies (includes non UK companies) then the above limits will be divided equally (not proportionately) between those companies. This could lead to one company being well below the £50,000 and another being way over.

A company is an associated company of another at any time when:

  • one of the two has controlof the other (parent and subsidiary say); or
  • both are under common control (have same shareholders such as spouses own both).


A husband and wife each own 50% of two companies. One is a construction company and the other sells scented candles. The former has taxable profit of £200,000 and the latter of £30,000.

The first will pay tax on all profits at 25% as its profit are over £125,000 (£250,000/2 associated companies). The other will pay tax on only £25,000 at 19% (£50,000/2 associated companies) and £5,000 at the marginal rate. If the businesses were in one company they would not exceed the £250,000 limit and if husband owned 100% of one and wife 100% of the other (and there is no commercial interdependence – see below) each company would get the full £50,000 and £250,000 limits.

If a company is another’s associated company at any time in an accounting period, it is that company’s associated company for the whole accounting period - no apportionment applies.

If companies have substantial commercial interdependence then the rights of associates (generally):

(a)a spouse or civil partner,

(b)a parent or remoter forebear,

(c)a child or remoter issue, or

(d)a brother or sister

may be attributed such as to put companies under common control.


A husband owns 100% of a company that hires out marquees. His wife owns 100% of a company that provides outdoor catering. If there is commercial interdependence between the two such as shared customers, marketing finances etc their companies will be classed as associated as the other spouses rights are attributed so they are both considered to control each company.

Dormant companies do not count for this purpose nor do passive holdings companies.

It may be possible to restructure the ownership of the companies to remove this issue or to reduce the number of companies.

Close Investment Holding Companies

Such companies will pay 25% corporation tax on all profits, but what is a Close Investment Holding Company?

In broad terms, a close company will be a CIC if it does not exist wholly or mainly for the purpose of trading commercially or investing in land for (unconnected) letting or acting as a holding or service company within a group which exists wholly or mainly to trade or invest in land for letting.

This is a complicated area and professional advice is recommended. If you think you are likely to be affected by the points above, please do get in touch for a consultation.