If your company's profits sit somewhere between modest and comfortable, you've probably heard whispers about Corporation Tax going up. The good news is that not every company pays the full main rate. Marginal relief is the rule that softens the jump, and it could mean a smaller tax bill than you think.
Here's what marginal relief is, who gets it, and how to work out your own number without losing an afternoon to spreadsheets.
What changed on 1 April 2023
From 1 April 2023, Corporation Tax stopped being a single flat rate. Instead, the rate you pay depends on your taxable profits:
- Companies with smaller profits pay the small profits rate of 19%.
- Companies with larger profits pay the main rate of 25%.
- Companies sitting in between pay something in the middle, thanks to marginal relief.
Without marginal relief, a company earning just over the lower threshold would suddenly face a much bigger bill than one earning just under it. Marginal relief smooths that cliff edge into a gentle slope.
Marginal relief means your Corporation Tax rate rises gradually as profits grow, instead of jumping all at once.
Who gets marginal relief?
Marginal relief is for UK resident companies whose taxable profits fall between the lower and upper limits set by HMRC. In broad terms:
- Profits at or below the lower limit (currently £50,000) are taxed at the small profits rate.
- Profits at or above the upper limit (currently £250,000) are taxed at the main rate.
- Profits between those two limits qualify for marginal relief.
A few companies are shut out. Close investment-holding companies don't get marginal relief, and non-UK resident companies aren't eligible either. If your company has associated companies (broadly, other companies under common control), the lower and upper limits are divided between you. Two associated companies share the limits in half, three share them in thirds, and so on.
Heads up - Short accounting periods also reduce the limits proportionally. A six-month period gets half the usual thresholds.
The marginal relief regime at a glance
Corporation Tax Marginal Relief
From 1 April 2023You qualify if you meet at least two of these three:
The plain English bit: if your company is based in the UK, isn't a close investment-holding company, and makes profits in the middle band, marginal relief reduces your Corporation Tax so you don't pay the full 25%.
How marginal relief actually works
The maths looks scarier than it is. HMRC sets a standard fraction, and your relief is calculated by taking the difference between the upper limit and your profits, then multiplying by that fraction (with a small adjustment if you have non-trading income from outside the company group).
In practice, the effect is this: your effective tax rate slides smoothly from 19% up to 25% as your profits move from the lower limit to the upper limit. You don't need to memorise the formula. You just need to know the inputs:
- Your taxable profits for the accounting period.
- The number of associated companies you have.
- The length of your accounting period.
- Any non-UK or non-trading distributions you've received.
Plug those in and the relief falls out the other side.
Work out your number in minutes
Rather than wrestling with the formula yourself, you can use our Corporation Tax calculator. Pop in your profits, your accounting period and any associated companies, and it will show you the bill with marginal relief already applied.
It's a quick sense-check before you commit to a dividend, a director's bonus or a piece of capital spending. A small change in profit can sometimes shift you from the main rate band back into marginal relief territory, and that's worth knowing before year end rather than after.
Common situations that trip people up
Group companies and 51% subsidiaries
If you own another company, or you and a family member each own a company, the associated companies rules can quietly halve your limits. That can push you into the main rate even when each company looks small on its own.
One-off spikes in profit
A property sale, a big contract or a write-back of a provision can push profits above the upper limit for a single year. Marginal relief still helps, but planning ahead, perhaps by bringing forward allowable spending, can keep you in the middle band.
Dividends received from other companies
Most UK dividends are exempt from Corporation Tax, but they still count when working out whether you've crossed the upper limit. It's a quirk worth flagging to your accountant.
Heads up - Marginal relief is claimed through your Company Tax Return (CT600). You don't apply for it separately, but you do need to enter the right figures in the right boxes.
Filing your CT600 with TaxOptimiser
Once you know your Corporation Tax figure, you still need to file it. TaxOptimiser lets you prepare and submit your CT600 directly to HMRC, along with your accounts and computations, all from one place. The marginal relief calculation flows straight from your numbers into the return, so you don't have to copy figures between tools.
That means fewer rekeying errors, a clear audit trail, and one less deadline to lose sleep over.
The short of it
Marginal relief isn't a loophole or a special claim. It's simply how Corporation Tax is meant to work for companies whose profits sit between £50,000 and £250,000. If that's you, make sure you're actually getting it, check whether associated companies are eating into your limits, and run the numbers before year end rather than after.
When you're ready, try the Corporation Tax calculator, then file your CT600 with us in a few clicks.