Complete UK Marginal Relief Calculator Guide
Understand the Corporation Tax taper between the 19% Small Profits Rate and 25% Main Rate. Learn about profit limits, associated companies, and HMRC rules.
Understanding Marginal Relief
Marginal Relief is a vital mechanism in the UK Corporation Tax system that smooths the transition between the lower and main tax rates, preventing a sudden ‘cliff edge’ in tax liability as company profits grow.
Key Features of Marginal Relief
Essential rules every director and accountant should know
The Profit Limits
Marginal Relief applies to companies with taxable profits between the lower limit (£50,000) and the upper limit (£250,000). Profits below £50k are taxed at 19%, and profits above £250k are taxed at 25%.
The Marginal Fraction
HMRC sets a standard marginal relief fraction of 3/200 (or 1.5%). This fraction is used in the statutory formula to calculate the exact amount of relief to deduct from the main rate tax calculation.
Associated Companies Rule
If a company has one or more associated companies, the £50,000 and £250,000 limits are divided by the total number of associated companies (including the company itself). This prevents artificial profit splitting.
Augmented Profits
To determine which tax band applies, HMRC looks at ‘augmented profits’, which includes taxable total profits plus any exempt non-distributable dividends received from non-group companies.
Marginal Relief Quick Facts Checklist
Essential rules to remember before calculating tax
How to Calculate Marginal Relief
Calculating Marginal Relief requires a specific statutory formula. Following these steps ensures your Corporation Tax computation is accurate and HMRC-compliant.
Determine Taxable Total Profits (TTP)
Calculate the company’s total taxable profits for the accounting period, after all allowable deductions, capital allowances, and loss reliefs have been applied.
Calculate Augmented Profits
Add any exempt non-distributable dividends (e.g., dividends received from non-group companies) to the TTP. This figure determines which tax band the company falls into.
Adjust Limits for Associated Companies
Identify all associated companies. Divide the standard lower (£50,000) and upper (£250,000) limits by the total number of associated companies to find your specific thresholds.
Apply the Marginal Relief Formula
If augmented profits fall between the adjusted limits, calculate relief using:
(Upper Limit – Augmented Profits) × (TTP / Augmented Profits) × (3/200). Deduct this relief from the tax calculated at the 25% Main Rate.
Corporation Tax Rates & Limits
A side-by-side summary of the UK Corporation Tax bands and how Marginal Relief bridges the gap.
| Tax Band | Profit Threshold (Standalone) | Tax Rate Applied |
|---|---|---|
| Small Profits Rate | £0 to £50,000 | 19% flat rate on all profits |
| Marginal Relief Band | £50,001 to £250,000 | Effective rate tapers smoothly from 19% to 25% |
| Main Rate | Over £250,000 | 25% flat rate on all profits |
| Ring Fence Profits (Oil & Gas) | Separate rules apply | 30% Main Rate (with distinct small profits limits) |
| Associated Companies Adjustment | Divide limits by (N) | Where N = total number of associated companies |
Marginal Relief FAQ
Answers to the most frequently asked questions about UK Corporation Tax, profit limits, and HMRC compliance.
Marginal Relief is a mechanism that smooths the transition between the Small Profits Rate (19%) and the Main Rate (25%) of Corporation Tax. It applies to companies with taxable profits between £50,000 and £250,000, preventing a sudden ‘cliff edge’ in tax liability as profits increase.
For a single company with no associated companies, the lower limit is £50,000 (where the 19% Small Profits Rate applies) and the upper limit is £250,000 (where the 25% Main Rate applies). Profits between these two figures are subject to Marginal Relief.
If a company has one or more associated companies, the £50,000 lower limit and £250,000 upper limit are divided by the total number of associated companies (including the company itself). For example, with 2 associated companies, the limits become £25,000 and £125,000.
The standard Marginal Relief fraction set by HMRC is 3/200 (or 1.5%). This fraction is used in the calculation to determine the exact amount of relief to deduct from the Main Rate tax calculation for profits falling within the marginal band.