Understanding associated companies and marginal relief

The UK Corporation Tax system uses different rates depending on your profit levels, and these thresholds are heavily impacted by whether your company has any 'Associated Companies'.

What is an Associated Company?

A company is an associated company of another if one has control of the other, or if both are under the control of the same person or persons. Generally, if you are the sole director and shareholder of three different active limited companies, they are all associated with each other.

Impact on Thresholds

The standard thresholds for Corporation Tax are £50,000 (below which you pay 19%) and £250,000 (above which you pay 25%). If you have associated companies, these thresholds are divided by the total number of companies. If you have one associated company (making two companies in total), your thresholds halve to £25,000 and £125,000.

Marginal Relief

If your profits fall between the lower and upper thresholds, you qualify for Marginal Relief. This mechanism calculates your tax at the main 25% rate and then applies a deduction based on a complex fractional formula, creating a sliding scale effective tax rate.

WeFile Calculations

In the Company Details step, WeFile will ask you for the number of associated companies. Ensure this is accurate. Once entered, WeFile's tax engine automatically divides the thresholds, determines your eligibility, and calculates the exact Marginal Relief deduction to ensure your final tax bill is perfectly accurate.