Marginal Relief for Corporation Tax

If your company's profits fall between £50,000 and £250,000, you don't automatically pay the full 25% Corporation Tax rate. Marginal Relief reduces your tax bill, creating a gradual increase between the 19% small profits rate and the 25% main rate. This relief has been availab...

What is Marginal Relief?

Since 1 April 2023, Corporation Tax operates on a tiered system:

Companies with taxable profits below £50,000 pay 19% (the small profits rate)
Companies with taxable profits above £250,000 pay 25% (the main rate)

Marginal Relief sits in the middle. If your profits fall between these two thresholds, you don't suddenly jump from 19% to 25%. Instead, Marginal Relief reduces your Corporation Tax liability, so your effective rate increases gradually as your profits rise through this band.

Who qualifies for Marginal Relief?

Your company can claim Marginal Relief if your taxable profits fall between £50,000 (the lower limit) and £250,000 (the upper limit).

These thresholds are firm, but they can be adjusted in two situations:

Short accounting periods: If your accounting period is shorter than 12 months, the limits are reduced proportionately. For example, a six-month accounting period would halve both thresholds to £25,000 and £125,000.

Associated companies: If your company has associated companies, you must divide the thresholds by the total number of associated companies (including your own). Associated companies are broadly those under common control.

For instance, if your company has three other associated companies (four in total), you divide both limits by four:

Lower limit: £50,000 ÷ 4 = £12,500
Upper limit: £250,000 ÷ 4 = £62,500

In this example, you'd only qualify for Marginal Relief if your profits were between £12,500 and £62,500.

Who cannot claim Marginal Relief?

Marginal Relief is not available to:

Non-UK resident companies
Close investment holding companies (broadly, companies controlled by five or fewer shareholders that exist mainly to hold investments rather than trade)

You also cannot claim Marginal Relief if your augmented profits exceed £250,000 (or the adjusted limit if you have associated companies or a short accounting period). Augmented profits include your taxable profits plus distributions received from companies that are not related or associated with your company.

How to calculate your relief

HMRC provides an online calculator to work out how much Marginal Relief you can claim. This tool is specifically designed for Corporation Tax profits from 1 April 2023 onwards.

To use the calculator, you'll need:

Your company's taxable profits
The length of your accounting period
The number of associated companies you have
Details of any distributions received from unrelated companies

The calculator will determine whether you qualify for relief and, if so, how much your Corporation Tax bill will be reduced.

How Marginal Relief affects your tax bill

Without Marginal Relief, there would be a cliff edge at £50,000. A company with £49,999 profit would pay £9,500 in tax (19%), while a company with £50,001 would pay £12,500 (25%) — a dramatic jump for just £2 extra profit.

Marginal Relief smooths this out. As your profits increase from £50,000 towards £250,000, your effective tax rate gradually rises from 19% towards 25%. Once you reach £250,000, you pay the full 25% main rate on all your profits.

This makes the tax system fairer and means you always benefit from earning more profit, without facing sudden jumps in your tax rate.

Claiming Marginal Relief

You claim Marginal Relief through your Corporation Tax return. When you complete your CT600 form, there are specific boxes for calculating and claiming the relief.

If you use accounting software or work with an accountant, they should identify whether you're eligible for Marginal Relief and calculate it for you. However, it's worth understanding how it works so you can plan your tax position throughout the year.

Planning considerations

Marginal Relief creates opportunities for tax planning. If your profits are likely to exceed £250,000 (or your adjusted limit), you might consider:

Timing expenditure to stay within the relief band
Contributing to company pension schemes
Making qualifying charitable donations
Reviewing your company structure if associated company rules are limiting your relief

Always speak to your accountant before making decisions based on tax considerations, as there may be wider implications for your business.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.