Key facts
- Marginal relief applies to profits between £50,000 (lower limit) and £250,000 (upper limit).
- The formula is: (U − A) × N/A × 3/200.
- The effective rate tapers from 19% to 25% across this band.
- Associated companies share the limits — reducing the thresholds.
- Below £50,000, the small profits rate of 19% applies; above £250,000, the main rate of 25% applies.
How Marginal Relief Works
From 1 April 2023, Corporation Tax is charged at two rates:[2]
| Profit Level | CT Rate |
|---|---|
| Profits up to £50,000 | 19% (small profits rate) |
| Profits over £250,000 | 25% (main rate) |
| Profits between £50,000 and £250,000 | 19%–25% (marginal relief applies) |
Marginal relief is not a separate tax band. Instead, it is a deduction from the CT calculated at the main rate, which smoothly tapers the effective rate from 19% at £50,000 to 25% at £250,000.[1] You don’t need to work this out by hand — CT600 software calculates marginal relief automatically.
The Marginal Relief Formula
Corporation Tax is first calculated at the full 25% main rate. Marginal relief is then deducted using the formula:[1]
Marginal relief = (U − A) × N/A × 3/200
Where:
U = upper limit (£250,000)
A = augmented profits (taxable profits + exempt distributions received, e.g. franked investment income)
N = taxable total profits (before any qualifying donations deduction)
3/200 = the marginal relief fraction (1.5%)
If the company has no exempt distributions (which is usually the case), then A = N, and the N/A fraction drops out, simplifying to:
Marginal relief = (U − N) × 3/200
Worked Examples
Example 1: Profits of £100,000
| Step | Calculation | Amount |
|---|---|---|
| CT at main rate (25%) | £100,000 × 25% | £25,000 |
| Marginal relief | (£250,000 − £100,000) × 3/200 | (£2,250) |
| CT payable | £25,000 − £2,250 | £22,750 |
| Effective rate | £22,750 ÷ £100,000 | 22.75% |
Example 2: Profits of £200,000
| Step | Calculation | Amount |
|---|---|---|
| CT at main rate (25%) | £200,000 × 25% | £50,000 |
| Marginal relief | (£250,000 − £200,000) × 3/200 | (£750) |
| CT payable | £50,000 − £750 | £49,250 |
| Effective rate | £49,250 ÷ £200,000 | 24.625% |
Tip: At exactly £50,000, the effective rate is 19%. At exactly £250,000, marginal relief is zero and the full 25% applies. Within the marginal band, the marginal rate on each additional pound of profit is 26.5% — higher than the main rate — because each extra pound of profit reduces the relief.
Associated Companies
The £50,000 and £250,000 limits are divided equally among associated companies. Two companies are associated if one controls the other, or both are controlled by the same person(s).[1]
| Number of Associated Companies | Lower Limit | Upper Limit |
|---|---|---|
| 1 (standalone) | £50,000 | £250,000 |
| 2 | £25,000 | £125,000 |
| 3 | £16,667 | £83,333 |
| 5 | £10,000 | £50,000 |
The count includes the company itself plus its associated companies. Dormant companies are excluded from the count.[3]
Important: “Control” includes not just shareholding but also voting rights and the right to receive the majority of income or assets on a winding up. Spouses and minor children’s holdings are attributed to each other for this purpose.[3]
Short Accounting Periods
If the accounting period is less than 12 months, the upper and lower limits are reduced proportionally. For example, a 6-month period would use limits of £25,000 and £125,000 for a standalone company.[1]
The marginal relief fraction (3/200) remains the same regardless of the period length — the time-apportioned limits already account for the shorter period.
Frequently Asked Questions
What is marginal relief for Corporation Tax?
Marginal relief is a deduction that tapers the effective Corporation Tax rate from 19% to 25% for companies with profits between £50,000 and £250,000.
How do you calculate marginal relief?
Corporation Tax is first calculated at the full 25% main rate. Marginal relief is then deducted using the formula: (Upper limit − Augmented profits) × N/A × 3/200.
What is the marginal rate of Corporation Tax?
Within the marginal relief band (£50,000–£250,000), the marginal rate on each additional pound of profit is effectively 26.5%, because each extra pound reduces the relief available.
How do associated companies affect marginal relief?
The £50,000 lower limit and £250,000 upper limit are divided equally among associated companies. For example, two associated companies share limits of £25,000 and £125,000 each.
Further Reading
- Corporation Tax Rates — current and historical rates
- Associated Companies — how they affect your thresholds
- Accounting Periods — how short periods affect limits
- Salary vs Dividends — how marginal relief influences extraction strategy
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