Corporation Tax Marginal Relief Calculator UK 2025

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How to Use This Corporation Tax Marginal Relief Calculator

1. Enter your taxable profit - This is your company's total taxable profit for the accounting period. You can find this figure on your company's corporation tax computation or draft tax return.
2. Enter any distributed profits - Include any dividends or other distributions your company has paid or is due to pay. Distributed profits are added to taxable profits to calculate your augmented profit, which determines which tax band you fall into.
3. Enter the number of associated companies - If your company has associated companies (companies controlled by the same persons), the profit thresholds of £50,000 and £250,000 are divided equally among all associated companies. For example, if you have one associated company, the lower limit becomes £25,000 and the upper limit becomes £125,000.
4. Set your accounting period length - If your accounting period is shorter than 12 months, the profit thresholds are reduced proportionately. For instance, a 6-month period would halve the thresholds to £25,000 and £125,000.
5. Click "Calculate Corporation Tax" - The calculator will display your corporation tax before and after marginal relief, your effective tax rate, and your profit after tax.
6. Review the profit band table - Check which band your company's profits fall into and see how marginal relief affects your overall tax position.

Understanding UK Corporation Tax Marginal Relief

What Is Marginal Relief?

Corporation Tax Marginal Relief is a mechanism introduced by HMRC that provides a gradual transition between the Small Profits Rate (19%) and the Main Rate (25%) of corporation tax. Without marginal relief, companies with profits just above the £50,000 threshold would face a sudden increase in their effective tax rate. Marginal relief smooths this transition so that the effective rate increases gradually from 19% to 25% as profits rise from £50,000 to £250,000.

The Marginal Relief Formula

HMRC calculates marginal relief using a specific formula. The relief amount is determined as follows:

Marginal Relief = (Upper Limit - Augmented Profits) x (Taxable Profits / Augmented Profits) x Marginal Relief Fraction (3/200)

The marginal relief fraction of 3/200 is set by the government and applies for the financial year starting 1 April 2023. This creates an effective marginal rate of 26.5% on profits between the lower and upper limits, meaning that for every additional pound of profit within this band, the company pays 26.5 pence in corporation tax.

Corporation Tax Rates for 2025/26

The current UK corporation tax structure, which took effect from 1 April 2023, operates on a two-rate system with marginal relief bridging the gap between them:

• Small Profits Rate (19%): Applies to companies with taxable profits of £50,000 or less. This rate remained unchanged from the previous flat rate that applied to all companies.
• Main Rate (25%): Applies to companies with taxable profits exceeding £250,000. This represented a significant increase from the previous flat rate of 19% that had been in place since April 2017.
• Marginal Relief Band (effective 26.5%): For profits between £50,001 and £250,000, companies pay the main rate of 25% but receive marginal relief to reduce the effective rate. The marginal rate within this band is 26.5%, which is higher than the main rate because the relief is being tapered away.

Impact of Associated Companies

Associated companies significantly affect how marginal relief is calculated. Two companies are associated if one controls the other, or both are controlled by the same person or group of persons. When a company has associated companies, the lower limit (£50,000) and upper limit (£250,000) are divided equally among the total number of companies (including the company itself).

For example, if a company has two associated companies (three companies in total), the adjusted thresholds would be:

• Lower limit: £50,000 / 3 = £16,667
• Upper limit: £250,000 / 3 = £83,333

This means the company would start paying the main rate of 25% on profits above just £83,333 rather than £250,000. Dormant companies and companies that have not carried on a trade or business at any time during the accounting period are excluded from the count of associated companies.

Short Accounting Periods

If your company's accounting period is shorter than 12 months, the lower and upper profit limits are reduced proportionately. For instance, a company with a 9-month accounting period would have adjusted limits of £37,500 (lower) and £187,500 (upper). This ensures that the marginal relief calculation fairly reflects the shortened trading period.

Augmented Profits Explained

Augmented profits are your taxable profits plus any exempt distributions (such as dividends received from non-associated UK companies are generally exempt). The augmented profit figure is used to determine which rate band your company falls into. It is important to note that while augmented profits determine the band, corporation tax is charged only on taxable profits, not on the full augmented amount.

Practical Examples

Example 1 - Small Profits Rate: A company with taxable profits of £40,000 and no associated companies pays corporation tax at 19%. Tax due: £40,000 x 19% = £7,600.

Example 2 - Marginal Relief: A company with taxable profits of £100,000, no distributed profits, and no associated companies. Tax at main rate: £100,000 x 25% = £25,000. Marginal relief: (£250,000 - £100,000) x 3/200 = £2,250. Tax due: £25,000 - £2,250 = £22,750. Effective rate: 22.75%.

Example 3 - Main Rate: A company with taxable profits of £500,000 pays corporation tax at 25%. Tax due: £500,000 x 25% = £125,000. No marginal relief is available as profits exceed the upper limit.

Tax Planning Considerations

Understanding marginal relief is essential for UK business tax planning. Here are some key considerations:

• Profit extraction timing: The timing of salary payments, bonus declarations, and pension contributions can influence whether your profits fall within the marginal relief band.
• Group structures: The number of associated companies directly affects your tax thresholds. Restructuring group arrangements may provide tax efficiencies.
• Capital allowances: Claiming available capital allowances, including the Annual Investment Allowance (currently £1 million) and full expensing for qualifying assets, can reduce taxable profits below key thresholds.
• R&D tax credits: Research and Development tax relief can significantly reduce your corporation tax liability and may bring your effective profits within the small profits rate band.
• Year-end planning: Reviewing your projected profits before the accounting period ends allows time to make legitimate tax-efficient decisions.

Filing and Payment Deadlines

UK companies must file their Corporation Tax return (CT600) within 12 months of the end of the accounting period. Corporation tax must be paid within 9 months and 1 day of the end of the accounting period. Larger companies (those with profits exceeding £1.5 million, or the proportionally adjusted threshold for companies with associated companies) must pay corporation tax in quarterly instalments.

History of UK Corporation Tax Rates

The current two-tier system was introduced on 1 April 2023. Prior to this, from April 2017, all companies paid a flat rate of 19% regardless of profit level. Before that, the UK had a similar tiered system with a small profits rate and main rate. The reintroduction of marginal relief in 2023 was announced in the Autumn Budget 2021, giving businesses time to prepare for the change.

Effective Corporation Tax Rates With Marginal Relief

The following table shows the effective corporation tax rate at various profit levels for a company with no associated companies and a standard 12-month accounting period. This illustrates how marginal relief creates a gradual transition between the 19% and 25% rates:

Note: The marginal relief figures above assume no distributed profits and no associated companies. Actual figures may vary based on your specific circumstances.

Corporation Tax Filing and Payment Tips

Getting your corporation tax right is essential for avoiding penalties and interest charges from HMRC. Here are some important tips for UK businesses:

• File on time: Your Corporation Tax return (CT600) must be filed within 12 months of the end of your accounting period. Late filing incurs automatic penalties: £100 for the first day late, another £100 if still late after 3 months, and 10% of the unpaid tax if still outstanding after 6 months.
• Pay on time: Corporation tax must be paid within 9 months and 1 day of the end of the accounting period. Interest is charged on late payments from the due date. HMRC charges interest at the Bank of England base rate plus 2.5%.
• Quarterly instalments: Companies with taxable profits exceeding £1.5 million (divided by the number of associated companies plus one) must pay corporation tax in quarterly instalments during the accounting period, rather than waiting until after the year end.
• Claim all available reliefs: In addition to marginal relief, ensure you claim all available tax reliefs and allowances, including the Annual Investment Allowance, full expensing for qualifying plant and machinery, R&D tax credits, and Patent Box relief if applicable.
• Keep accurate records: You must keep records for at least 6 years from the end of the accounting period. These include invoices, receipts, bank statements, contracts, and payroll records. Good record-keeping is essential for accurate corporation tax calculations and for defending your position in the event of an HMRC enquiry.
• Use the HMRC online service: All corporation tax returns must be filed online using HMRC's Company Tax Return service or compatible third-party software. You will need your company's Unique Taxpayer Reference (UTR) and Government Gateway credentials.

Common Mistakes When Calculating Marginal Relief

Corporation tax calculations involving marginal relief can be complex, and several common errors can lead to incorrect tax computations. Being aware of these pitfalls helps ensure accuracy:

• Forgetting to include associated companies: One of the most frequent mistakes is not accounting for associated companies when calculating the adjusted profit thresholds. If your company has any associated companies, the £50,000 and £250,000 limits must be divided among the total number of companies. Failing to do this could result in claiming relief you are not entitled to, which may trigger penalties during an HMRC review.
• Confusing taxable profits with augmented profits: Augmented profits (taxable profits plus exempt distributions) determine which rate band your company falls into, but corporation tax is only charged on taxable profits. Some businesses mistakenly calculate tax on augmented profits, leading to an overpayment.
• Not adjusting for short accounting periods: If your accounting period is shorter or longer than 12 months, the profit thresholds must be adjusted proportionately. A company that changed its accounting reference date might have an accounting period of, say, 15 months, which must be split into two periods for corporation tax purposes, with the thresholds adjusted for each.
• Overlooking the impact of dividends received: Dividends received from non-associated UK companies are generally exempt from corporation tax but are included in augmented profits. This can push a company into a higher rate band even though the dividends themselves are not taxed, potentially reducing or eliminating marginal relief.
• Applying the wrong marginal relief fraction: The marginal relief fraction is 3/200, not 3/100 or any other fraction. Using the wrong fraction will produce an incorrect relief amount. This fraction applies from 1 April 2023 onwards.
• Not considering quarterly instalment payments: Companies whose profits (adjusted for associated companies) exceed £1.5 million must pay corporation tax in quarterly instalments. Miscalculating the thresholds due to incorrect marginal relief calculations can lead to unexpected instalment payment requirements and potential interest charges.

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