The current corporation tax rates
Since April 2023, the UK has operated a two-rate corporation tax system:
- Small Profits Rate: 19% applies to companies with taxable profits up to £50,000
- Main Rate: 25% applies to companies with taxable profits over £250,000
- Marginal Relief applies to profits between £50,001 and £250,000, tapering the effective rate between 19% and 25%
What is Marginal Relief?
Marginal Relief reduces the corporation tax bill for companies in the £50,001 to £250,000 profit band. The effective rate is not a flat percentage. It increases gradually as profits rise. HMRC provides a Marginal Relief calculator.
The formula: Marginal Relief = (Upper Limit − Profits) × (Profits / Profits) × 3/200. In practice, use the HMRC calculator or ask your accountant to run it.
Associated companies rule
The £50,000 and £250,000 thresholds are divided by the number of "associated companies" (companies under common control). If you own two companies, each threshold halves to £25,000 / £125,000. This catches many small business owners off guard.
Planning opportunities
- Salary/dividend split: a carefully structured director salary and dividend mix can reduce the company's taxable profit into the small profits rate band
- Pension contributions: employer pension contributions are a deductible expense, reducing taxable profits
- Capital allowances: the Annual Investment Allowance (AIA) at £1m covers most SME capital expenditure, giving an immediate 100% deduction
- R&D credits: if your company carries out qualifying research and development, SME R&D tax relief applies
When to speak to an accountant
If your company's profits are approaching or within the marginal relief band, proactive tax planning before your financial year end can materially reduce your bill. Don't wait until the CT600 is due.
Book a free call with Beacon & Ledger to review your corporation tax position before year end.