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What you need to know about subsidiaries as associated companies

It's essential for businesses to understand the implications of the changes, especially if they are associated with other companies.

15 Mar 2024

By Sejal Shah

Significant changes to the UK’s corporation tax rates came into effect last year. It’s essential for businesses to understand the implications of the changes, especially if they are associated with other companies. Importantly, it’s crucial to be aware of the definition and treatment of sub subsidiaries in the context of associated companies.  Here we detail how the relationships work.


Sub-subsidiaries, ie where one company controls another, which in turn controls another, are also included as associated companies. The definition is a very wide one. Therefore, if one company controls another and that controls another, we do not multiply the holdings downwards to work out whether one company owns more than 50% of another.

Consider the following group structure:

group structure example

Which companies are associated with Parent Ltd for the Accounts Preparation (AP)?  

Parent Ltd controls A Ltd, B Ltd, D Ltd, E Ltd and F Ltd. However, B Ltd is a dormant company and is therefore ignored.

The holding in C Ltd is less than 50% and C Ltd is therefore not under the control of Parent Ltd.

A Ltd, D Ltd, E Ltd and F Ltd are all associated with Parent Ltd. The profit limits will be divided by five for each of these companies in calculating their corporation tax liabilities.


When determining whether companies are associated, the holdings of an individual shareholder may have to be added to holdings of their ‘associates’.

This is only necessary where there is substantial commercial interdependence between the two companies.

Associates include the individual and their relatives and any business partners with whom the individual is trading in partnership. The definition does not extend to individuals who are directors in the same company.

Relatives are defined as the individual’s spouse or civil partner, plus also their brothers and sisters, children and remoter issue, i.e. grandchildren etc, parents and remoter forebears, i.e. grandparents etc.

We also apportion the rights and powers of trustees, where the settlor is the individual or a relative of that individual. The settlor is the person who actually puts the money into the trust.


David Jones and his sister, Helen Smith, own the following shareholdings: 

David Jones example - Alpha LtdHelen Smith - Beta Ltd

If there is substantial commercial interdependence between Alpha Ltd and Beta Ltd, then in determining whether the companies are associated the shareholdings owned by David Jones must be added to those of his sister, Helen Smith.

Therefore, according to the definition of associated companies, Alpha Ltd and Beta Ltd are under common control and we must divide the profit limits by two for each company in order to calculate their corporation tax liabilities.

However, if there is no substantial commercial interdependence then there is no need to add the shareholdings of David Jones to those of Helen Smith.

Alpha Ltd would be controlled by David Jones and Beta Ltd would be controlled by Helen Smith. The two companies would not be associated, and it would not be necessary to divide the profit limits by two.

Substantial Commercial Interdependence

There are three factors that should be taken into account, which are the degree to which the companies are:

  • Financially interdependent
  • Economically interdependent, and
  • Organisationally interdependent.

Financial interdependence

This exists if a company gives financial support to or has a financial interest in another company. If one company loaned money to the other, or was acting as guarantor, they would be financially interdependent. The financial arrangement must be between the companies themselves, not the shareholders.

Economic interdependence

This looks at whether the companies have the same economic objectives, have activities that benefit each other or have common customers.

Organisational interdependence

This is concerned with shared resources – management, employees, premises or equipment.

Holding Companies

  • A pure holding company will be treated as dormant provided that all of the following apply:
  • It has no assets other than shares in 51% subsidiaries.
  • It is not entitled to any deductions for qualifying charitable donations or management expenses in respect of any outgoings.
  • It has no income or gains other than dividends which it has distributed in full to its members.

Therefore, in the Illustration above, if Parent Ltd had no assets other than its shareholdings, no expenses and no income or gains other than dividends received from its 51% subsidiary companies which it distributed in full to its shareholders, there would only be four associated companies in calculating the corporation tax liabilities of A Ltd, D Ltd, E Ltd and F Ltd.

Implications for your company

On that basis, if the companies had a year end of 31 December 2023, the following thresholds would apply to each company (i.e. the above-mentioned thresholds divided by four):

  • £62,500 taxable profits – the level at which all of the taxable profits for the second part of the year (i.e. from 1 April 2023 onwards) will be taxed at 25%. Below this level, the tax-rate would be between 19% and 25%.  The taxable profits for the period up to 31 March 2023 will be taxed at 19%.
  • £375,000 taxable profits – the level at which the company is classed as ‘large’ and will therefore need to start paying QIPs for 2024 (i.e. the following year).
  • £2.5m taxable profits – the level at which the company has to start paying the QIPs for the first year in which it becomes ‘large’, i.e. 2023. If that is the case, then two QIPS would be payable during the 2023 tax-year, i.e. on 14 July and 14 October 2023, and two in the following year, i.e. on 14 January and 14 April 2024.
  • £5m taxable profits – the level at which the company is classed as ‘very large’ and has to pay the QIPs four months earlier, i.e. all four payable during the tax-year. In that case, the QIPs would be payable on 14 March, 14 June, 14 September and 14 December 2023.

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