The rate of Corporation Tax payable depends on the level of a company’s taxable profits. The main rate is 25% and applies where profits exceed £250,000. At the other end of the scale, companies with profits of £50,000 or less benefit from the Small Profits Rate, which remains at 19%.
For businesses with profits between these thresholds, marginal relief applies. Rather than facing a sharp increase in tax, companies experience a gradual rise in the effective rate as profits move from £50,000 towards £250,000. This ensures a smoother transition between the lower and higher rates.
It is important to note that the £50,000 and £250,000 thresholds are not always fixed. They are reduced where a company has associated companies or where the accounting period is shorter than 12 months, which can bring more businesses into the marginal relief band.
In practice, Corporation Tax is initially calculated at the main rate of 25%, with marginal relief then deducted to arrive at the final liability. The relief is calculated using a standard fraction of 3/200.
The marginal rates help smaller companies to pay less Corporation Tax based on their profit level and circumstances.
