More Than One Company? The Corporation Tax Trap

If you've got two, three or more limited companies, there's a slightly rubbish Corporation Tax rule you need to know about. We're seeing the effect of it in some Corporation Tax bills now, and for business owners with several companies the difference can come as a bit of a shock.

Don't panic though. This isn't a brand-new 2026 rule and it doesn't necessarily mean anything has gone wrong with your accounts. It all comes down to something called associated companies, and we'll keep the explanation as painless as possible.

One company? Nice and easy.

Normally, a limited company with profits of up to £50,000 can pay Corporation Tax at the 19% small-profits rate. Between £50,000 and £250,000, Marginal Relief comes into play and the effective rate gradually increases. Once profits reach £250,000, the main Corporation Tax rate is 25%.

The catch is that those £50,000 and £250,000 limits assume you don't have any associated companies. If you control more than one company, the limits can be divided between them.

So somebody with five associated companies can have a lower threshold of just £10,000 per company, rather than the £50,000 they may have been expecting. That's where some surprisingly chunky Corporation Tax bills can come from.

"But they're completely different businesses!"

This is the bit that's catching people out. You might subcontract through one company, have a building company and run something completely different through another. The fact that they do completely different things doesn't automatically stop them from being associated.

Broadly, it's about who controls the companies, rather than simply what each business does. It's also not as simple as looking at who is listed as a director, as ownership and voting rights can matter too. There are additional rules around connected people, so if you're unsure whether another company counts, ask us rather than guessing.

Why are we talking about this now?

This isn't a new 2026 HMRC change. The current Corporation Tax system has applied since 1 April 2023, when the 19% small-profits rate, 25% main rate and Marginal Relief system came into effect.

Before then, Corporation Tax was generally charged at a single 19% rate, so these particular thresholds didn't matter in the same way. Now, as Corporation Tax bills are being calculated under the current system, we're seeing cases where having several companies can make a very noticeable difference to the final bill.

Should I close one of my companies?

Not necessarily, so please don't start closing companies after reading this!

There can be perfectly good reasons for having several limited companies. However, if you've got different businesses or income streams, it may be worth reviewing whether your current setup still makes sense. For some people, for example, having one limited company and operating another business as a sole trader could be worth considering.

That doesn't automatically mean it will save tax. We'd need to consider Corporation Tax, Income Tax, National Insurance, dividends, VAT, business risk and how much each business actually makes. This one really is a case-by-case calculation.

What if I've got a bigger bill than expected?

First of all, don't ignore it. If you're struggling to pay a Corporation Tax bill in full, HMRC may agree a Time to Pay arrangement, depending on your circumstances.

Equally, don't automatically assume a bigger bill means something has gone wrong. If you control several companies, the associated-company rules may simply mean the Corporation Tax thresholds are lower than you expected.

So what do I actually need to do?

If you've got more than one limited company, make sure your accountant knows about all of them, even if one seems completely unrelated to the others. If you're a Gold Stag client and you're worried about how the rules affect you, get in touch and we can look at your individual circumstances.

Most importantly, don't restructure your businesses based on one tax bill alone. Having several companies isn't automatically wrong, and becoming a sole trader isn't automatically better. We need to look at the whole picture and work out what makes sense for you going forward.

Because unfortunately, Dave down the pub's "just open another limited company" tax plan didn't account for this bit.

Sorry, Dave.