What is Corporation Tax Marginal Relief?
Marginal Relief creates a gradual transition between the 19% small-profits rate and the 25% main rate of Corporation Tax, rather than companies simply jumping directly from one rate to the other once profits pass £50,000.
How Marginal Relief works
For companies with profits between £50,000 and £250,000, Marginal Relief reduces the amount of Corporation Tax due below what a straight 25% charge would produce, tapering the effective rate upward as profits rise through the band.
Marginal Relief formula
HMRC's standard formula multiplies three figures together: the Upper Limit minus the company's profits, multiplied by the ratio of taxable profits to total profits, multiplied by the Standard Marginal Relief fraction. The thresholds and fraction are set for each financial year, and the calculation is normally handled through the CT600 computation rather than worked out manually.
Marginal Relief example
A company with £100,000 of taxable profit sits within the Marginal Relief band. Rather than paying 25% Corporation Tax on the full amount, Marginal Relief reduces the liability so the effective rate sits between 19% and 25%, reflecting where the profit falls within the band.
Why Marginal Relief matters for growing businesses
As a company's profits grow past £50,000, Marginal Relief means the jump in Corporation Tax is gradual rather than sudden. Understanding where a business sits within the band helps with cash flow planning, since the effective tax rate on each additional pound of profit is higher than 19% once the band is entered, and this can influence decisions on timing of income, dividends, or capital expenditure.
Related terms: Corporation Tax, Corporation Tax Rate, Associated Companies, CT600, Capital Allowances.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.