Marginal Relief Corporation Tax
- MAZ
- Oct 22
- 19 min read
Understanding Marginal Relief for Corporation Tax in the UK: 2025/26 In-Depth Guide
Why Marginal Relief Matters More Than You Might Think
Picture this: your small limited company has had a solid year — profits have climbed just above £50,000. You’re pleased, until you realise you might now face the 25% Corporation Tax rate. That’s when your accountant mentions Marginal Relief — and suddenly, the jargon begins.
Let’s clear it up. Marginal Relief is a mechanism that softens the leap between the small profits rate (19%) and the main rate (25%) of Corporation Tax. In plain English, it ensures that if your company’s profits fall between £50,000 and £250,000, you won’t pay the full 25% rate right away. Instead, there’s a tapered increase, giving you a smoother transition and, ultimately, a smaller tax bill.
In my 18 years working with owner-managed businesses, I’ve seen how often companies either overpay or under-claim this relief simply because they misunderstand the rules or assume it applies automatically. Spoiler: it doesn’t.
The Basics — Corporation Tax Rates for 2025/26
From 1 April 2023 onwards, the UK operates a two-tier Corporation Tax system, confirmed by HMRC’s official guidance:
Taxable Profits | Corporation Tax Rate (2025/26) |
Up to £50,000 | 19% (Small profits rate) |
Between £50,001 – £250,000 | Marginal Relief applies |
Above £250,000 | 25% (Main rate) |
Those £50,000 and £250,000 thresholds are called the lower and upper limits, and they’re key to understanding whether you qualify.
Be careful here — these limits can change for two main reasons:
Short accounting periods (e.g. if your company trades for only 6 months, the limits are halved).
Associated companies — meaning if your business is part of a group, the limits are divided by the total number of companies.
For example, a company with 3 associated companies divides the limits by 4 (the total number of companies). So the lower limit becomes £12,500 and the upper limit £62,500. That’s where many directors get caught out — assuming the full limits apply when they don’t.
How the Marginal Relief Calculation Works
Now, this is where the maths comes in — and where I’ve seen plenty of business owners glaze over. But bear with me; once you understand the moving parts, it’s actually quite logical.
The Marginal Relief is worked out using this formula (officially confirmed by HMRC):
Marginal Relief=(U−A)×NA\text{Marginal Relief} = (U - A) \times \frac{N}{A}Marginal Relief=(U−A)×AN
where:
● U = Upper limit (£250,000, adjusted if needed)
● A = Augmented profits (taxable profits + distributions from non-group companies)
● N = Marginal Relief fraction (3/200 for 2025/26)
You can check your own figures using HMRC’s Marginal Relief calculator, which gives a step-by-step breakdown.
A Real Example from Practice
Let’s take an example from my files (details changed for privacy).
Sonia, who runs a small marketing agency in Bristol, made £120,000 in taxable profits in 2024/25. She has no associated companies.
Without Marginal Relief, Sonia would face the main rate of 25%, meaning a tax bill of £30,000.
With Marginal Relief applied, the calculation works out roughly as:
(250,000−120,000)×3200=1,950(250,000 - 120,000) \times \frac{3}{200} = 1,950(250,000−120,000)×2003=1,950
So the effective tax payable reduces to £28,050 instead of £30,000 — a saving of nearly £1,950. That’s not a small change for a growing company.
Common Mistakes Directors Make (and How to Avoid Them)
1. Assuming HMRC Applies It Automatically This is the biggest misconception I see every April. Marginal Relief isn’t automatically calculated in every case — especially if you file your own Company Tax Return (CT600) manually or through third-party software. Always double-check whether your tax computation includes the relief.
2. Forgetting About Associated Companies When a client runs multiple limited companies (for instance, a property firm and a consulting company), the limits must be split across all. I once had a client who inadvertently claimed full relief on one company, not realising his secondary business halved his thresholds. HMRC later clawed back several thousand pounds — plus interest.
3. Ignoring Short Accounting Periods If your company starts or ceases trading mid-year, you must adjust your limits proportionately. For instance, a 6-month accounting period reduces the limits to £25,000 and £125,000. Missing this adjustment can distort your Corporation Tax calculation.
Step-by-Step: How to Check If You Qualify
If you’re unsure whether your business is eligible, here’s a simple checklist I give to clients:
Confirm your taxable profit — taken from your final corporation tax computation.
Count your associated companies — including dormant ones (they still count).
Adjust your lower and upper limits proportionally.
Add any distributions from non-group companies to your taxable profits (to find your augmented profits).
Check if your adjusted profit lies between your lower and upper limits.
Use the HMRC calculator to find the relief amount.
Ensure it’s correctly entered in your Company Tax Return software.
You can cross-check your company’s Corporation Tax data or repayments using your HMRC business tax account.
Why It’s Important to Get This Right
None of us loves tax surprises, but I’ve seen too many small firms face penalties or unexpected bills because they didn’t realise how marginal relief interacts with their profit thresholds.
A few missed adjustments here and there — say, forgetting a short accounting period or miscounting associated entities — can shift you into the 25% bracket unnecessarily.
I’ve even encountered directors who overpaid tax for several years before we corrected it and claimed back significant refunds via amended Corporation Tax returns. HMRC usually allows corrections up to 12 months after the statutory filing date, so it’s worth reviewing past filings if something feels off.
Beyond the Numbers: Strategic Implications for 2025/26
For many small businesses, understanding marginal relief is more than a tax exercise — it’s a planning tool.
If you know your profits are trending near the £50,000 mark, you might consider timing large expenses, capital investments, or dividend payments strategically to stay within the marginal zone.
Similarly, if your profits are close to £250,000, spreading profits across associated entities or deferring income might soften your effective tax rate. Just ensure this is done within legitimate commercial reasoning — HMRC frowns on artificial arrangements.
What’s Changed Since 2023 — and What Hasn’t
The core structure of marginal relief hasn’t changed since its reintroduction in April 2023. However, as of August 2025, HMRC has emphasised more rigorous checks on companies misreporting associated entities — a growing compliance area.
Also, keep an eye on updates in future Budgets; while the thresholds remain frozen, inflation and frozen allowances elsewhere in the tax system mean more companies are creeping into the marginal band each year.
In other words, more of you will find this topic relevant for 2025/26 and beyond.
Quick Reference Links
For easy reference, here are the key official resources:
● HMRC Marginal Relief guidance: gov.uk/guidance/corporation-tax-marginal-relief
● Marginal Relief calculator: tax.service.gov.uk/estimate-corporation-tax/marginal-relief-calculator
● Corporation Tax overview: gov.uk/corporation-tax
● File or amend CT600 return: gov.uk/company-tax-return
● Business Tax Account: gov.uk/guidance/sign-in-to-your-hmrc-business-tax-account
UK Corporation Tax Marginal Relief Calculator
Maximising Marginal Relief: Real-World Strategies and Common Pitfalls for UK Companies
Making the Most of Marginal Relief – Where the Real Savings Lie
Let’s be honest — the concept of marginal relief is fairly straightforward once you grasp the basics. The real challenge lies in applying it correctly to your specific situation. That’s where most business owners slip up.
I’ve spent years sitting across from directors who’ve either missed relief entirely or miscalculated it by relying on generic accounting software. And in some cases, those errors cost thousands.
So in this section, we’ll dig into the real-life applications — what I teach clients when we sit down with a year-end profit and loss statement and a strong cuppa in hand.
Adjusting for Associated Companies – The Hidden Trap
Now, one of the biggest stumbling blocks in the HMRC guidance is the rule around associated companies.
If your company is part of a group or you control more than one company — say, you own a consultancy and a property management business — the £50,000 and £250,000 limits must be divided by the total number of associated companies.
Here’s what that looks like in practice:
Number of Associated Companies | Lower Limit | Upper Limit |
1 (only your company) | £50,000 | £250,000 |
2 companies | £25,000 | £125,000 |
3 companies | £16,667 | £83,333 |
4 companies | £12,500 | £62,500 |
Why does this matter? Because your eligibility for relief shrinks rapidly if you run multiple limited entities.
I once advised Paul, a client who ran a marketing agency and a design studio under separate companies. His accountant hadn’t adjusted the limits, so both businesses claimed full marginal relief. HMRC reviewed the returns, recalculated based on divided thresholds, and Paul ended up owing an extra £8,400 in Corporation Tax — plus late payment interest.
So, if you run multiple companies under common control, make sure your CT600 return reflects the correct associated count. HMRC is increasingly cross-checking this using Companies House and connected company data.
Short Accounting Periods – Don’t Forget the Pro-Rata Adjustment
Another subtle but crucial rule is that the thresholds reduce in proportion to the length of your accounting period.
For instance, if your company’s first trading year lasts only 6 months, then your small profits limit becomes £25,000, and your upper limit becomes £125,000.
Many directors overlook this when forming new companies mid-year or during mergers. I once had a startup client whose first set of accounts covered just 8 months — but their software used full-year limits. That single oversight inflated their marginal relief claim by over £2,000, triggering an HMRC adjustment notice.
Always double-check your accounting period on your Companies House filing, and confirm your CT600 computation reflects the correct pro-rata thresholds.
Planning Ahead – Timing Expenses and Income to Optimise Relief
If there’s one area where marginal relief offers genuine strategic value, it’s tax planning.
Think of it this way: marginal relief smooths the rate between 19% and 25%, meaning the effective tax rate gradually rises as profits increase. So, timing your spending or income recognition can help you stay within a more favourable band.
Here’s how this works in practice:
● Advance expenses such as equipment purchases or pension contributions before your year-end if profits are near the upper limit.
● Defer invoices or bonuses to the next accounting period if you’re edging into 25% territory.
● Review capital allowances on machinery or IT kit — particularly if claiming full expensing relief could strategically bring your taxable profit below £250,000.
For example, a client of mine, Jade, ran an engineering company with expected profits of £255,000. By investing £10,000 in qualifying plant machinery before 31 March, she reduced her taxable profit to £245,000 — comfortably back in marginal relief range. The result? An effective tax saving of around £1,500.
Understanding Augmented Profits – The Silent Factor
A key detail often missed in marginal relief calculations is the concept of augmented profits.
According to HMRC’s official definition, augmented profits are your taxable profits plus any dividends received from non-group companies.
That means if your company holds investments or receives dividends from companies outside your corporate group, those amounts increase your augmented profits and may reduce your relief.
So, even if your trading profit is £240,000, an extra £15,000 of external dividends could push your augmented profit to £255,000 — wiping out your entitlement to relief entirely.
In my experience, this catches out small investment companies and family businesses that hold minor share portfolios. Always review dividend income before year-end to avoid unintended consequences.
Using the HMRC Calculator – Step-by-Step
HMRC’s online Marginal Relief calculator (as you can see above) remains the simplest way to verify your calculation.
Here’s how to use it effectively:
Visit the calculator on GOV.UK (or the above calcuator).
Enter your company’s taxable profit and augmented profit.
Input the number of associated companies (including dormant ones).
Confirm if your accounting period covers 12 months — if not, specify the duration.
The calculator then outputs:
○ Marginal Relief amount
○ Effective Corporation Tax rate
○ Total Corporation Tax due
Print or download the result for your records — HMRC can ask for evidence if figures are challenged later.
Common Scenarios from Practice – Lessons Learned
Let’s look at three anonymised client cases to illustrate common traps:
Case 1 – The Overconfident DIY Filer Mark, who ran a small logistics firm, filed his CT600 using free software. He entered £200,000 as profit and ticked “no associated companies.” HMRC later discovered he owned a second dormant company, which should have halved his thresholds. His marginal relief claim was disallowed, resulting in an extra £3,750 owed. Lesson: Dormant companies still count. Always disclose them.
Case 2 – The New Start-Up with Short Year Hannah’s consultancy traded for eight months, generating £90,000 in profit. Her accountant used the full-year £50,000–£250,000 limits, overstating relief by about £1,000. Lesson: Adjust limits proportionally for accounting periods under 12 months.
Case 3 – The Dividend Misstep A family investment company earned £230,000 trading profit and £20,000 in external dividends. Because augmented profits were £250,000, their marginal relief vanished. Lesson: Review non-group income before year-end; it can push you above the threshold.
When to Revisit Past Returns
If you suspect you’ve under- or over-claimed marginal relief in a previous year, you can usually correct this by filing an amended Corporation Tax return within 12 months after the statutory filing date.
In some cases, HMRC will process overpayment relief claims beyond that period — but you’ll need evidence (like management accounts or revised computations).
I’ve helped several clients recover thousands in overpaid tax this way, especially where group structures were miscounted or short periods were mishandled.
Preparing for the Future – Marginal Relief Beyond 2025/26
While the £50,000 and £250,000 thresholds remain frozen through the 2025/26 tax year, inflation and wage growth mean more companies are edging into the marginal zone each year.
The effective tax rate curve between the small profits and main rates means the “sweet spot” for planning is narrowing — so strategic forecasting has never been more valuable.
If your company expects profits in the £40,000–£300,000 range, make marginal relief part of your annual planning cycle. Run simulations before year-end and consider legitimate ways to smooth income — rather than discovering a surprise bill in your Corporation Tax notice later.
Quick Reference: Key HMRC Resources
● Marginal Relief overview: gov.uk/guidance/corporation-tax-marginal-relief
● HMRC Marginal Relief calculator: tax.service.gov.uk/estimate-corporation-tax/marginal-relief-calculator
● Corporation Tax rates: gov.uk/corporation-tax
● Amend your CT600 return: gov.uk/guidance/corporation-tax-amend-your-return
● Full expensing capital allowances: gov.uk/guidance/full-expensing-super-deduction-and-50-first-year-allowance
Integrating Marginal Relief into Broader Tax Strategy: Advanced Planning for UK Businesses in 2025/26
Thinking Beyond Compliance – Turning Marginal Relief into a Strategic Advantage
By this point, you understand what marginal relief is and how it works. But here’s where most business owners stop — they treat it purely as a post-year-end calculation.
In reality, marginal relief can be an incredibly useful strategic lever when planned early. It’s not just about reducing tax; it’s about smoothing profitability, managing growth sustainably, and avoiding cash flow shocks.
In my two decades of advising directors and finance managers, I’ve found that those who factor marginal relief into quarterly forecasts make far better financial decisions than those who only think about it at filing time.
Using Marginal Relief in Director Remuneration Planning
Let’s start with one of the most practical areas: how director remuneration interacts with Corporation Tax bands.
If your company’s profits hover around the £50,000–£250,000 zone, how you structure your own income (salary vs. dividends) can significantly affect your final tax rate.
Consider this scenario:
● A small business earns £240,000 before paying the director’s bonus.
● Paying a £15,000 director bonus before the year-end reduces taxable profits to £225,000.
● That single payment could reclaim part of the marginal relief you’d otherwise lose, effectively lowering your effective Corporation Tax rate to around 23% instead of 25%.
You’ll need to balance this with PAYE obligations and potential National Insurance costs, but the overall tax efficiency often improves.
The same logic applies in reverse — if your profits sit near the lower limit (£50,000), paying an excessive bonus could reduce profit unnecessarily when you’re already enjoying the 19% rate.
Blending Capital Allowances with Marginal Relief
Capital allowances can play a big role in shaping your effective rate. Since April 2023, the UK has offered full expensing on qualifying plant and machinery investments, meaning companies can deduct 100% of the cost in the year of purchase.
If used wisely, this interacts neatly with marginal relief:
● By bringing profits down into the marginal band, you reduce tax at 25% and potentially recover part of the relief.
● By dropping too far below £50,000, you may lose efficiency since you’re already on 19%.
Here’s a practical example from my files:
Ahmed, who runs a small food production company, expected £270,000 profit in 2025/26. He planned £40,000 of new kitchen equipment qualifying for full expensing. After the deduction, taxable profit fell to £230,000 — giving him back partial marginal relief and saving an extra £2,400 in Corporation Tax.
These opportunities are why I encourage directors to treat capital expenditure as part of strategic year-end tax planning, not just operational budgeting.
Managing Group Companies and Intra-Company Transfers
If your business operates as part of a group or family of companies, marginal relief becomes trickier. Each company is treated separately for tax purposes, but their associated status directly affects thresholds.
In practice, you can often improve your overall group position by redistributing profit and cost flows between companies — legitimately and commercially.
For example:
● Shifting management fees or shared costs to balance profits evenly among associated entities can keep each company within its own optimal marginal range.
● But tread carefully — HMRC can challenge “artificial” transfers lacking real business substance under transfer pricing and connected company rules.
I often help clients model these effects before year-end to ensure that profit allocation achieves genuine tax efficiency without breaching anti-avoidance provisions.
Spotting and Avoiding Audit Red Flags
HMRC’s Corporation Tax compliance teams have ramped up reviews of marginal relief claims since 2024, particularly among SMEs claiming inconsistent associated company data.
Here are the red flags I see drawing attention:
Inconsistent group disclosures on CT600 forms versus Companies House filings.
Round-number marginal relief entries — e.g., £1,000 exactly — suggesting manual errors.
Short accounting periods not reflected in reduced limits.
Omitted dividend income affecting augmented profits.
To stay clear of trouble, always ensure your supporting computations match the figures submitted. If in doubt, retain copies of your Corporation Tax calculation, group structure chart, and dividend vouchers for at least six years after filing.
Incorporating Marginal Relief into Growth Forecasting
A question I often get from ambitious business owners is:
“Should I hold back my growth just to stay in marginal relief territory?”
My honest answer: rarely.
Marginal relief offers welcome savings, but the effective rate rises smoothly, not sharply — meaning you’re never worse off earning more profit. However, understanding where your business sits on that curve helps you:
● Forecast cash flow more accurately.
● Price contracts with net profits in mind.
● Time dividends and reinvestment for maximum efficiency.
I use simple projection sheets showing how the effective Corporation Tax rate increases gradually from 19% at £50,000 to 25% at £250,000, with an average effective rate of around 22% at £150,000. When directors visualise this, it suddenly clicks — the goal isn’t to avoid growth, but to plan for it intelligently.
Reviewing Past Returns for Missed Relief
If you suspect past overpayments, it’s worth reviewing earlier years. As mentioned before, you can submit an amended Corporation Tax return within 12 months of your filing deadline.
In more complex cases — say, where group adjustments were missed — you can still apply for overpayment relief, though you’ll need to show precise workings and contemporaneous evidence.
I’ve recovered refunds for clients going back two to three years, particularly where dormant companies were wrongly counted or capital allowances were overlooked. Don’t assume past filings are final — HMRC allows legitimate corrections when backed by clear calculations.
Preparing for Future Tax Shifts
As of August 2025, the government hasn’t announced any major changes to Corporation Tax thresholds for the 2026/27 tax year. However, there’s growing policy discussion about:
● Adjusting thresholds for inflation to reduce the “fiscal drag” effect.
● Simplifying the marginal relief formula for SMEs.
If thresholds remain frozen while profits rise, more small firms will fall into the marginal zone by default. It’s a subtle but significant tax creep, and proactive directors should prepare early — not wait for surprise increases in effective rates.
Keep an eye on official Budget announcements at gov.uk/government/collections/budget-and-autumn-statement-documents for the latest policy updates.
A Practical “End-of-Year Marginal Relief Checklist”
Before your accountant finalises your next Corporation Tax return, run through this checklist:
Confirm taxable and augmented profits — including any dividends from non-group companies.
Count all associated companies, including dormant ones.
Adjust thresholds for short accounting periods.
Review capital allowances and consider timing new investments.
Cross-check HMRC’s calculator results with your own computation.
Ensure CT600 entries match your detailed workings.
Retain documentation (calculations, dividend records, group charts).
Forecast next year’s profits to anticipate tax cash flow.
Seek professional review if running multiple entities or unusual structures.
Revisit past filings if you suspect overpayments — the window may still be open.
Summary of Key Points
Marginal Relief bridges the gap between 19% and 25% Corporation Tax, softening the jump for companies earning £50,000–£250,000.
Associated companies and short periods dramatically alter eligibility — thresholds must always be adjusted.
HMRC’s formula and calculator are the only accurate tools to compute relief correctly.
Director remuneration timing can strategically adjust profits into a more efficient band.
Capital allowances and full expensing can legitimately restore eligibility to the marginal range.
Augmented profits include dividends from non-group companies, which can eliminate relief.
HMRC audits increasingly target inconsistent data and misapplied thresholds — accuracy is critical.
Marginal Relief shouldn’t discourage growth — use it to forecast and plan rather than to limit expansion.
Revisiting prior returns can uncover missed claims or overpayments, often worth thousands.
Staying proactive and informed ensures you benefit fully while keeping HMRC compliance watertight.
FAQs
Q1: How does marginal relief actually reduce Corporation Tax for small companies?
A1: Well, it smooths the jump between the 19% and 25% Corporation Tax rates. Instead of leaping from one rate to another, you effectively pay a tapered rate depending on your profit level. In my experience, it works like a sliding dimmer rather than an on/off switch — the more profit you make beyond £50,000, the higher the blended rate up to 25% at £250,000.
Q2: Can a business still qualify for marginal relief if it has overseas subsidiaries?
A2: Possibly, but it depends. HMRC treats overseas subsidiaries as “associated companies” if you control them directly or indirectly. For example, if your UK company owns a 51% stake in an Irish subsidiary, both count toward adjusting your marginal relief thresholds. The practical result? Each company’s profit bands shrink, so fewer UK profits benefit from the relief.
Q3: What happens if a company’s profit fluctuates around the £50,000 mark each year?
A3: That’s where planning pays off. I’ve seen clients alternate between full 19% years and marginal relief years just by delaying invoices or bonuses. The key is consistency — small timing adjustments can stabilise profits and prevent wild swings in effective tax rates.
Q4: How does marginal relief apply if a company has a short accounting period?
A4: The profit limits shrink in proportion to the period. So, if you only trade for six months, your lower and upper limits halve to £25,000 and £125,000. I once had a client who forgot this after incorporating mid-year — they expected relief on £200,000 profit but received none because their adjusted limit was £125,000.
Q5: Can marginal relief be claimed by LLPs or sole traders?
A5: No, marginal relief is purely a Corporation Tax mechanism. Sole traders and LLPs fall under Income Tax rules instead. However, many small LLPs later incorporate, and understanding marginal relief helps predict post-incorporation tax outcomes.
Q6: If two companies share directors but not ownership, do they count as associated?
A6: Not automatically. HMRC looks at control, not just overlapping directors. For example, if Alice and Ben co-direct two firms but own shares separately, they’re not associated unless there’s genuine control or interdependence. This distinction often saves smaller consultancies from losing marginal relief unfairly.
Q7: How can dividends from other companies affect marginal relief?
A7: Here’s a sneaky trap — dividends from non-group companies count as “augmented profits” and can knock you out of eligibility. I’ve seen small investment companies lose thousands this way because they treated dividend income as tax-free when calculating relief.
Q8: What’s the most common mistake accountants make when applying marginal relief?
A8: Honestly, it’s missing associated dormant companies. Even a dormant subsidiary at Companies House counts toward threshold splitting unless officially struck off. I once reviewed a return where this oversight cost the client nearly £4,000 in overpaid tax.
Q9: Can capital allowances bring a company back into marginal relief range?
A9: Absolutely. Let’s say your profits hit £260,000 — investing £15,000 in qualifying machinery could reduce taxable profit to £245,000, regaining a slice of marginal relief. It’s one of the simplest, most legitimate timing tools directors can use before year-end.
Q10: Does marginal relief apply differently in Scotland or Wales?
A10: No — Corporation Tax is uniform across the UK. However, devolved governments have different business rates and grants, which can indirectly affect your taxable profits or investment timing.
Q11: How can a business check if its marginal relief calculation is correct?
A11: Use HMRC’s official calculator or cross-check your tax software output against the published formula. I always recommend sanity-checking the effective rate: if it’s between 19% and 25%, you’re in the right ballpark. Anything outside that range signals a computation issue.
Q12: Can a company amend its return to claim missed marginal relief?
A12: Yes — within 12 months of your filing deadline. I once helped a tech startup reclaim over £8,000 after discovering their tax software ignored an associated company adjustment. Beyond that period, you’d need to apply for “overpayment relief,” which takes longer.
Q13: What if a company’s profit rises above £250,000 mid-year?
A13: HMRC doesn’t tax month-by-month; it’s based on the final accounting year. So, even if profits spike mid-year, you might still get partial relief if full-year profits settle below £250,000. Strategic timing of expenses or director bonuses can make all the difference.
Q14: How do group structures affect marginal relief in practice?
A14: In groups, the £50k/£250k thresholds are split equally across all associated companies. So, if you’ve got four entities under common control, each gets just £12,500–£62,500. I often advise clients to review whether dormant or low-activity companies are still worth keeping if they dilute relief.
Q15: Can R&D tax credits interact with marginal relief?
A15: They can. The relief reduces your taxable profits, which in turn affects how much Corporation Tax you actually owe after marginal relief. The two can stack nicely, but timing matters — if you claim R&D late, your marginal relief calculation might need recalculating.
Q16: How does marginal relief affect quarterly instalment payments for larger companies?
A16: Marginal relief itself doesn’t change instalment obligations, but crossing £1.5 million in profits (adjusted for associated companies) can trigger the Quarterly Instalment Payment regime. Many medium firms end up both losing relief and facing earlier payment deadlines — a real cash flow double hit.
Q17: Can marginal relief apply to ring-fenced profits like oil and gas activities?
A17: No, ring-fenced trades (like oil extraction) follow their own Corporation Tax regime, currently with different rates and no marginal relief. Always separate those profits on your CT600 if you operate in both sectors.
Q18: What if a company changes ownership mid-year?
A18: The year is effectively split into pre- and post-acquisition periods. Each period’s profits are tested separately for marginal relief, so timing transactions near year-end can unintentionally alter the calculation. I’ve seen acquirers surprised by unexpected tax bills here.
Q19: How can a business forecast its effective Corporation Tax rate under marginal relief?
A19: I recommend plotting profits against HMRC’s rate curve — at £100,000 profit, you’re roughly at a 21% effective rate; at £150,000, about 22%. Once directors visualise this, planning dividends and reinvestment decisions becomes far clearer.
Q20: What’s the best year-end strategy for companies near the £250,000 threshold?
A20: In my experience, it’s a balancing act — use legitimate deductions (capital allowances, pension contributions, bonuses) to smooth profit just under the limit without forcing artificial losses. The goal isn’t to “chase relief,” but to manage growth tax-efficiently and predictably year-on-year.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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