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Corporation Tax marginal relief explained
Companies with profits of £50,000 or less pay 19%. Over £250,000 they pay 25%. In between, they pay 25% and then take off marginal relief, which eases the step from one rate to the other.
The formula
Marginal relief = (upper limit − profits) × 3/200
The upper limit is £250,000 and the fraction is 3/200 (1.5%). So the tax is 25% of profits minus 1.5% of the gap between profits and £250,000.
Worked examples (12-month period, no associated companies)
| Taxable profit | Tax at 25% | Marginal relief | Corporation Tax | Effective rate |
|---|---|---|---|---|
| £50,000 | - | - | £9,500 | 19.0% |
| £75,000 | £18,750 | £2,625 | £16,125 | 21.5% |
| £100,000 | £25,000 | £2,250 | £22,750 | 22.75% |
| £150,000 | £37,500 | £1,500 | £36,000 | 24.0% |
| £250,000 | £62,500 | £0 | £62,500 | 25.0% |
The hidden 26.5% rate
Every extra pound of profit between £50,000 and £250,000 costs 26.5p in tax: 25p, plus 1.5p of marginal relief you lose. That's why spending on the business, pension contributions or a director's salary saves more tax in this band than at 19% or 25%.
Associated companies
If the company has associated companies (other companies controlled by the same people, often including close relatives), the £50,000 and £250,000 limits are divided by the number of companies. With one associated company, the limits are £25,000 and £125,000. Dormant companies and passive holding companies don't count.
Short accounting periods
For a period shorter than 12 months, the limits are cut in proportion. A 6-month period of 183 days has limits of about £25,068 and £125,342.
Periods that span 1 April
Corporation Tax rates are set for financial years running 1 April to 31 March. If your accounting period spans 1 April, the profit is split by days between the two financial years, and each part gets its own share of the limits. Both parts go on the CT600 tax calculation (boxes 330 to 345 and 380 to 395). While the rates stay the same, the total comes out the same as a single year.
Where it goes on the CT600
- Box 329: put an X if the company pays the small profits rate or gets marginal relief.
- Boxes 330 to 345: financial year, profit, rate and tax. With marginal relief the rate is 25%.
- Box 435: marginal relief.
- Box 440: Corporation Tax chargeable (box 430 minus box 435).
Let us do the sums. Our calculator handles short periods, associated companies and periods that span 1 April, and gives you every CT600 box.
Work out my Corporation Tax