Marginal Tax relief in Corporation Tax

What Marginal Relief is

From 1 April 2023 the Corporation Tax rate changes to:

19% for taxable profits below £50,000 (small profit rate)
25% for taxable profits above £250,000 (main rate)

Marginal Relief provides a gradual increase in Corporation Tax rate between the small profits rate and the main rate — this allows you to reduce your rate from the 25% main rate.

Who can claim Marginal Relief

Your company or organisation may be able to claim Marginal Relief if its taxable profits from 1 April 2023 are between:

• £50,000 (the lower limit)
• £250,000 (the upper limit)

If your accounting period is shorter than 12 months these limits are proportionately reduced. These limits are also proportionately reduced by the number of associated companies your company has.

For example, if your company has 3 other associated companies, the limits are divided by 4. The lower limit becomes £12,500 and the upper limit becomes £62,500.

Who cannot claim Marginal Relief

You cannot claim Marginal Relief if:

you’re a non-UK resident company
you’re a close investment holding company

your profits (including distributions from unrelated, unassociated companies) go over £250,000

The Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. A Small Profits Rate (SPR) of 19% will also be introduced from the same date for companies with profits of up to £50,000 ensuring these companies pay Corporation Tax at the same rate as currently.

Where a company has profits between £50,000 and £250,000, a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.

The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.

The amount of tax you pay will be found by multiplying your profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction is 3/200.