Corporation Tax marginal relief, explained — with worked examples

Marginal relief is the bit of the post-2023 Corporation Tax rules that most owner-managed clients still ask about. The rate looks like a flat 25% on profits above £50,000, but the band between £50,000 and £250,000 is taxed at an effective rate that ramps up gradually — and that ramp is where the planning sits.

The formula in one line

Take the main rate (25%) and deduct marginal relief calculated as:

3/200 × (£250,000 − Augmented Profits) × (Taxable Total Profits / Augmented Profits)

For most companies without exempt distributions, augmented profits and taxable total profits are the same number, and the second fraction is 1.

Worked example 1 — £180,000 profit, no associates

• Main-rate liability: £180,000 × 25% = £45,000
• Marginal relief: 3/200 × (£250,000 − £180,000) = £1,050
• CT due: £43,950 (effective rate 24.42%)

Worked example 2 — £180,000 profit, two associated companies

The thresholds are divided by 1 + number of associates (so 3 in total). Lower limit becomes £16,667, upper limit £83,333. £180,000 is now above the upper limit, so there is no marginal relief.

• CT due: £180,000 × 25% = £45,000 (effective 25%)

That extra £1,050 is the price of associated companies. Worth flagging to clients with a personal-trading-company structure before year-end.

Worked example 3 — short accounting period (9 months)

Both thresholds are pro-rated by days. A 274-day period gives a lower limit of £37,534 and an upper limit of £187,671. A £180,000 profit now sits near the top of the band — relief drops to about £115.

What to tell clients

Three things land well: (1) the marginal band exists, (2) associates and short periods squeeze it, (3) timing of bonuses or pension contributions can move profits across the £250,000 line and matter more than they used to.