Corporation tax in the UK has two main rates: 19% for companies with profits up to £50,000 (the small profits rate) and 25% for companies with profits of £250,000 or more (the main rate). If your profits fall between £50,000 and £250,000, marginal relief applies.
Marginal relief is designed to smooth the transition between the two rates. Without it, a company earning £50,001 would suddenly jump from paying 19% to 25% on all its profits — an unfair cliff edge.
The formula for marginal relief is: relief equals the fraction 3/200 multiplied by (£250,000 minus your profits). This relief is subtracted from the tax calculated at the main rate of 25%.
For a company with £100,000 profit: tax at 25% is £25,000. Marginal relief is 3/200 multiplied by (£250,000 minus £100,000) which equals £2,250. So the actual tax is £25,000 minus £2,250, which is £22,750. The effective rate is 22.75%.
At £150,000 profit, the effective rate works out at approximately 23.5%. At £200,000, it is approximately 24.25%. The rate gradually increases from 19% at £50,000 to 25% at £250,000.
If your company has associated companies (companies under common control), the £50,000 and £250,000 thresholds are divided equally between them. Two associated companies would have thresholds of £25,000 and £125,000.
Use our corporation tax calculator for an instant calculation with marginal relief applied automatically.