Marginal relief is the mechanism that takes a company's corporation tax rate gradually from 19 percent to 25 percent as its profit rises from £50,000 to £250,000, instead of jumping at one figure, per gov.uk. It is a relief against tax worked at the main rate, equal to a fixed fraction of the gap between the upper limit and the profit, and it is where most of the arithmetic in corporation tax for small businesses now lives, because the band between the limits is where most trading limited companies with a few staff fall. This page sets out how it works, how the limits are cut for short periods and associated companies, what the marginal rate really is, and points to the free UK corporation tax calculator on this site, which is a marginal relief corporation tax calculator by construction.
How much is corporation tax for a limited company, by band
Per gov.uk: 19 percent on profits of £50,000 or less, 25 percent on profits over £250,000, and between those limits the main rate less marginal relief. The relief is three two-hundredths of the difference between the upper limit and the profit, so at £60,000 it is £2,850 off a main rate charge of £15,000, giving £12,150 and an effective rate of 20.25%; at £200,000 it is £750 off £50,000, giving 24.625%. The effective rate climbs smoothly through the band and reaches 25 percent exactly at the upper limit.
The 26.5 percent marginal rate, and what it changes
Because the relief shrinks by three two-hundredths of each extra pound, the tax on each extra pound in the band is 25 percent plus 1.5%: 26.5 percent, higher than either headline rate. That is the rate that applies to a decision at the margin, an extra £10,000 of profit or a £10,000 pension contribution, for a company in the band, and it is why a deductible cost timed into a marginal relief year saves more than in a small profits year. The calculator prints the effective rate, and the marginal rate is the figure to hold in mind when reading it.
Short periods and associated companies cut the limits
The £50,000 and £250,000 limits are for a twelve month period and one company. A nine month period has limits of £37,500 and £187,500; a company with one associate divides both limits by two, and with three associates by four, so its limits become £12,500 and £62,500, per gov.uk's guidance. A company that reads its band against the headline limits when it has an associate will understate its tax. The free calculator takes the period length and the number of associated companies and prints the reduced limits before the band is chosen.
Who cannot claim it
Per gov.uk, a non-UK resident company, a close investment holding company, and a company whose profits including distributions from unassociated companies go over £250,000 cannot claim marginal relief. For the first two the main rate applies from the first pound. A limited company corporation tax computation for a family investment company therefore uses 25 percent throughout, and the calculator's main rate band is the one to choose for it.
Questions people ask about marginal relief corporation tax
Do I have to apply for marginal relief?
No. It is claimed in the corporation tax computation on the CT600 and applied automatically to profits between the limits. There is no separate form; the computation shows the relief as a deduction from tax at the main rate.
Does a dormant subsidiary count as an associated company?
No. A company that has not carried on a trade or business at any time in the period is not counted as an associate for the purpose of dividing the limits, per gov.uk's guidance.
Is corporation tax small business relief the same thing?
In practice, yes. The small profits rate of 19 percent and marginal relief between the limits are together what is meant by the relief for small businesses; there is no separate small business rate beyond those.