Corporation Tax Small Profits & Marginal Relief
19/05/2023

The UK government has reinstated the small profits rate and marginal relief for companies with profits between £50,000 and £250,000 as of April 6, 2023, following an eight-year hiatus. Before 2015, there were two main rates of corporation tax: the main rate, which applied if taxable total profits exceeded an upper limit, and the small profits rate, which applied if total profits fell below a lower limit. The marginal relief was given to companies whose total profits fell between the lower and the upper limits. Between 2015 and 2023, these separate rates were merged into one main corporation tax rate, making the small profits rate and marginal relief rules redundant. There are three main situations that can arise when calculating corporation tax for a company: when the main CT rate is used with no deduction for marginal relief; when it is used with a deduction for marginal relief; and when only the small profits CT rate is used. The small profits CT rate is set at 19% from April 1, 2023, and can be used if the company’s augmented profits do not exceed the lower limit, the company is UK resident during the accounting period, and the company is not a close investment-holding company. 

Marginal Relief

Marginal relief is given in circumstances where a company’s augmented profits exceed the lower limit but do not exceed the upper limit, and the company is not a close investment-holding company in the accounting period. Augmented profits are defined as a company’s taxable total profits for the period plus any exempt distributions of a qualifying kind received by the company that are not excluded. The amount of marginal relief is calculated using a formula that includes the standard marginal relief fraction, the upper limit, the amount of augmented profits, and the amount of taxable total profits.

Table 1

Apportionment of Total Taxable Profits

Table 2

Marginal Relief