What is marginal relief for corporation tax?
Answered 11 March 2026
Here is a comprehensive explanation of marginal relief for corporation tax.
Marginal Relief for Corporation Tax
What the law says
Background: The two-rate structure
From 1 April 2023, corporation tax operates with two rates: a small profits rate (19%) for companies with profits at or below the lower limit, and a main rate (25%) for companies with profits at or above the upper limit. Marginal relief bridges the gap between the two.
Who qualifies
Under CTA 2010, s.18B, marginal relief applies where:
- the company is UK resident in the accounting period;
- it is not a close investment-holding company;
- its augmented profits exceed the lower limit but do not exceed the upper limit; and
- its augmented profits do not include any ring fence profits.
The formula
The corporation tax charged at the main rate is reduced by:
F × (U − A) × (N ÷ A)
Where:
- F = the standard marginal relief fraction (set by Parliament each financial year)
- U = the upper limit
- A = the amount of augmented profits
- N = the amount of taxable total profits
The current fraction
For financial year 2023 onwards, the standard marginal relief fraction is 3/200.
The limits
Under CTA 2010, s.18D, for a standard 12-month accounting period with no associated companies:
- Lower limit: £50,000
- Upper limit: £250,000
Where a company has one or more associated companies, both limits are divided by (1 + N), where N is the number of associated companies. For accounting periods of less than 12 months, the limits are proportionately reduced.
Associated companies
Under CTA 2010, s.18E, a company is an associated company if, at any time in the accounting period, one company controls the other, or both are under the control of the same person(s). A company is treated as associated for the whole accounting period even if it is associated for only part of it (subject to exceptions for non-trading companies).
Ring fence profits
Special rules apply for companies with oil and gas ring fence profits. Where a company has only ring fence profits, the reduction uses the ring fence marginal relief fraction of 11/400. Where a company has both ring fence and other profits, the relief is split between the two fractions accordingly.
HMRC guidance / practice
How the fraction is derived
HMRC explains that the standard marginal relief fraction (3/200) represents the difference between the main rate and the marginal rate, expressed as a fraction. With a small profits rate of 19% and a main rate of 25%:
- CT at the upper limit (£250,000 × 25%) = £62,500
- CT at the lower limit (£50,000 × 19%) = £9,500
- Tax on the difference of £200,000 = £53,000
- Marginal rate = 26.5% (£53,000 ÷ £200,000)
- Difference between 26.5% and 25% = 1.5% = 3/200
This means marginal relief provides a gradual increase in the CT rate between the small profits rate and the main rate.
Current rates table
HMRC confirms the following for financial years 2023–2025 (for a 12-month period with no associated company):
| Financial Year | Small Profits Rate | Lower Limit | Upper Limit | Fraction |
|---|---|---|---|---|
| 2023 | 19% | £50,000 | £250,000 | 3/200 |
| 2024 | 19% | £50,000 | £250,000 | 3/200 |
| 2025 | 19% | £50,000 | £250,000 | 3/200 |
Worked example (HMRC)
For the period ended 30 September 2026, a company has profits of £90,000, no associated companies, and has received £8,000 exempt distributions (making augmented profits = £98,000):
- CT at main rate: £90,000 × 25% = £22,500
- Less marginal relief: (3/200 × (£250,000 − £98,000)) × (£90,000 ÷ £98,000) = £2,094
- CT liability = £20,406
Associated companies — limit reduction
Where a company has three associated companies (four companies in total), HMRC confirms the limits are divided by four:
- Lower limit: £50,000 ÷ 4 = £12,500
- Upper limit: £250,000 ÷ 4 = £62,500
In summary: Marginal relief is a mechanism that tapers the effective corporation tax rate for companies whose augmented profits fall between £50,000 and £250,000 (for a 12-month period with no associated companies). It prevents a cliff-edge jump from the 19% small profits rate to the 25% main rate, instead producing an effective marginal rate of 26.5% on profits within the band.
Citation sources
PART 3A Companies with small profits The lower limit and the upper limit The lower limit and the upper limit 18D 1 This section gives the meaning in this Part of “the lower limit” and “ the upper limit ” in relation to an accounting period of a company (“C”). 2 If C has no associated company in the accounting period— a the lower limit is £50,000, and b the upper limit is £250,000. 3 If C has one or more associated companies in the accounting period— a the lower limit is— £ 50,000 ( 1 + N ) b the
PART 1 Income tax, corporation tax and capital gains tax Corporation tax charge and rates Small profits rate chargeable on companies from 1 April 2023 7 1 Schedule 1 contains the following provision (with effect from 1 April 2023)— a provision for corporation tax to be charged at the standard small profits rate on profits that are not ring fence profits, b provision for marginal relief to be given by reference to the standard marginal relief fraction, c provision making corresponding amendments
Part 8 Oil activities CHAPTER 3A Rates at which corporation tax is charged on ring fence profits Marginal relief Company with only ring fence profits 279B 1 This section applies if— a a company is UK resident in an accounting period, ab it is not a close investment-holding company in the period, b its augmented profits of the accounting period— i exceed the lower limit, but ii do not exceed the upper limit, and c its augmented profits of that period consist exclusively of ring fence profits. 2 T
Part 8 Oil activities CHAPTER 3A Rates at which corporation tax is charged on ring fence profits Marginal relief Company with ring fence profits and other profits 279C 1 This section applies if— a a company is UK resident in an accounting period, ab it is not a close investment-holding company in the period, b its augmented profits of the accounting period— i exceed the lower limit, but ii do not exceed the upper limit, and c its augmented profits of that period consist of both ring fence profit
The lower rates of CT, and relevant limits and fractions, applicable are as follows: Financial year (commencing 1 April) Rate Lower limit where no associated company* Upper limit where no associated company* Marginal relief standard fraction 2023 19% £50,000 £250,000 3/200 2024 19% £50,000 £250,000 3/200 2025 19% £50,000 £250,000 3/200 *based on a 12-month accounting period. For a table with the rates, limits and fractions for the small profits relief from Financial year 1989 to Financial year 2
Where in any accounting period of twelve months: a company has no associated companies, and its augmented profits for the accounting period exceed the lower limit but do not exceed the upper limit the CT charged at the main rate on its total taxable profits is reduced by an amount of marginal relief calculated using the following formula: (F x (U – A)) x (N ÷ A) Where F = the standard marginal relief fraction (set by Parliament for each financial year) U = the upper limit A = the amount of augme
PART 3A Companies with small profits Marginal relief Marginal relief for companies without ring fence profits 18B 1 This section applies if— a a company is UK resident in an accounting period, b it is not a close investment-holding company in the period, c its augmented profits of the accounting period exceed the lower limit but do not exceed the upper limit, and d its augmented profits of the accounting period do not include any ring fence profits. 2 The corporation tax charged on the company's
Where in any accounting period a company has one or more associated companies, the upper and lower limits are divided by the total number of associated companies, that is, one plus the number of companies associated with the subject company. Therefore, if the company has three associated companies and its accounting period is for the twelve months to 31 March 2024, the lower and upper limits are Lower limit £50,000 / 4 = £12,500 Upper limit £250,000 / 4 = £62,500 Where the accounting period is l