How does Corporation Tax marginal relief work for small companies?

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Corporation Tax marginal relief exists to smooth the jump between the 19% small profits rate and the 25% main rate, rather than having profits suddenly taxed at the full main rate the moment they cross £50,000. **The three bands** Profits up to £50,000 are taxed entirely at 19%. Profits above £250,000 are taxed entirely at 25%. Profits between £50,000 and £250,000 are technically charged at 25%, then reduced using the marginal relief formula, which uses the fraction 3/200. **The formula** Marginal relief = (Upper Limit − Profits) × (Basic Profits ÷ Profits) × 3/200, in HMRC's standard notation, or more simply for a company with no associated companies: (£250,000 − profits) × 3/200, deducted from the tax otherwise due at 25%. **Worked example** A company with £100,000 profit: tax at 25% = £25,000. Marginal relief = (£250,000 − £100,000) × 3/200 = £150,000 × 0.015 = £2,250. Tax due = £25,000 − £2,250 = £22,750, an effective rate of 22.75%. **Associated companies reduce the limits** If a company has associated companies (broadly, companies under common control), the £50,000 and £250,000 limits are divided by the total number of associated companies, meaning group structures reach the higher effective rate at a much lower profit level per company. **Practical tip** Use the Corporation Tax calculator to model your specific profit level, and if you are close to £50,000 or considering group restructuring, get the associated companies rules checked, since they materially shrink the marginal relief bands.

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