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The UK government brought about major reforms to Corporation Tax effective 1 April 2023. Previously a flat rate of 19%, the system now includes three tiers: a main rate of 25%, a small profits rate of 19%, and Marginal Relief for companies within the rates of these two tiers.
We will outline what these changes mean for your limited company. Regardless of whether you pay the lower rate or the main rate, or opt for Marginal Relief on your business profits a year, you will be able to grasp how it all works. Our corporate tax team keeps this Corporation Tax guidance up to date to help you stay in control of your Corporation Tax.
Corporation tax is a crucial aspect of running a business in the UK. It is a tax on the profits made by companies, rather than on their income. This means that after deducting allowable expenses from your income, the remaining amount—your taxable profits—is subject to corporation tax. The corporation tax rate you pay depends on the level of these taxable profits.
For instance, if your company’s taxable profits fall below the small profits rate threshold, you will pay a lower rate of corporation tax. Conversely, if your profits exceed the main rate threshold, you will be subject to a higher rate. It is the responsibility of the company’s directors to ensure that the correct amount of corporation tax is paid, which involves accurate bookkeeping and timely tax planning.
Understanding how corporation tax works and how it is calculated is essential for effective financial management and compliance. By staying informed about the current corporation tax rates and thresholds, businesses can better plan their finances and avoid unexpected tax liabilities.
Marginal Relief is a method that allows a medium-sized business to minimise the payment of its Corporation Tax. It is available to limited companies whose profits fall above the small profits rate threshold but below the main rate threshold. A company’s profits impact the eligibility for Marginal Relief, as they dictate the tax rate applied and how marginal relief can alter the corporation tax owed. Marginal Relief is the best method instead of a direct increase in personal tax rate because it brings a gradual change and makes the tax system more equitable for growing companies.
For example, let us consider a company that is earning slightly above the small profits rate. Without Marginal Relief, it would be exposed to a situation in which its tax rate jumps drastically. Marginal Relief smoothens this leap by providing certain financial relief.
Calculating Marginal Relief isn’t as hard as it sounds. The formula is straightforward and provided by HMRC:
Marginal Relief = (Upper Limit – Profits) × Marginal Relief Fraction
Here’s an example:
The calculation would be:
(£250,000 – £60,000) × 1/100 = £1,900
This £1,900 reduces your tax bill, saving you money and easing financial pressure.
Marginal Relief is especially useful for medium-sized businesses, it assists them in their dealings with taxes as they expand.
Here are some benefits:
For businesses in this growth phase, Marginal Relief offers a financial boost without the stress of higher taxes.
Not all companies fall under the category that is eligible for Marginal Relief. To claim it, your business must:
If your profits exceed the small profits rate you will pay the higher tax rate, if your profits are below the small profits rate, you will simply pay the small profits tax rate. Hence, if they go over the main rate threshold, Marginal Relief is not even an option.
The UK’s Corporation Tax rates are split into three categories:
This tiered system ensures that businesses of all sizes are taxed fairly, taking into account their individual financial situations. If you’re looking to understand how this works in practice, our Corporation Tax Guide provides a clear breakdown.
Let’s look at another example:
Marginal Relief = (£250,000 – £200,000) × 1/100 = £500
The £500 will be subtracted from your Corporation Tax bill, so you can spend more on your business development.
It will be significant in terms of tax planning to achieve a reasonable understanding of what Marginal Relief entails.
Here’s how:
At MMBA, as your business tax consultants, we ensure you optimise Marginal Relief and other tax incentives.
To take full advantage of marginal relief, follow these tips:
Good bookkeeping and tax planning can save you time, money, and stress in the long run.
Current rules (effective 1 April 2026, confirmed at Autumn Budget 2025):
Marginal Relief is beneficial to the UK business, especially for those at the growth stage. It helps companies transition smoothly between Corporation Tax rates, reducing their tax bills and freeing up cash for investment.
At MMBA, we are fully aware of how carefully you want to deal with your taxes and ensure that you do not incur any penalties as imposed by HMRC. No matter if you need help with calculating Corporation Tax, planning your taxes, or just with the general financial decision-making for your business, we’ll be there for you.
In this way, Marginal Relief and other smart tax policies will help you to concentrate on extending your business without worry. To get through the whole process successfully and learn how to make the most out of all available opportunities, let MMBA do the job for you.
Companies with profits between the small profits rate threshold and the main rate threshold can claim Marginal Relief. Businesses with profits below or above these limits cannot.
The main rate of Corporation Tax in the UK is 25%, which applies to companies with profits above £250,000.
Marginal Relief reduces the tax rate gradually for companies with profits between the small profits rate (£50,000) and the main rate (£250,000), easing the jump in tax bills.
