What Is Marginal Relief and Why Does It Matter?
If your company's taxable profits for the financial year ending 31 March 2025 fall between £50,000 and £250,000, you're eligible for marginal relief. This is a tax reduction that bridges the gap between the small profits rate (19%) and the main rate (25%).
Without marginal relief, a company with £50,001 in profits would jump from paying 19% to 25% — a massive cliff edge. Marginal relief smooths this out, so your effective tax rate gradually increases as profits rise.
This is one of the most commonly missed reliefs on CT600 returns. Directors who used HMRC's free filing service often overpaid because the service didn't calculate marginal relief automatically. Getting this right could save your company thousands of pounds.
The Corporation Tax Rates for FY2024 (Year to 31 March 2025)
| Profit band | Rate |
|---|---|
| £0 – £50,000 | 19% (small profits rate) |
| £50,001 – £250,000 | Effective rate between 19% and 25% (marginal relief applies) |
| Over £250,000 | 25% (main rate) |
These thresholds apply to the financial year ending 31 March 2025. They also applied to FY2023 (year to 31 March 2024) and continue for FY2025 (year to 31 March 2026).
Important: Associated Companies
If you (or persons connected to you) control other companies, the thresholds are divided by the number of associated companies plus one. For example:
- One associated company → thresholds become £25,000 and £125,000
- Two associated companies → thresholds become £16,667 and £83,333
Most single-company directors don't have associated companies, so the standard £50,000/£250,000 thresholds apply.
The Marginal Relief Formula
HMRC's marginal relief formula is:
Marginal Relief = F × (U – A) × (N ÷ A)
Where:
- F = the marginal relief fraction = 3/200 (0.015)
- U = the upper limit = £250,000 (adjusted for associated companies and short periods)
- A = augmented profits (taxable profits + exempt distributions — for most small companies, this equals taxable profits)
- N = taxable profits (usually the same as A for companies that don't receive dividends from non-associated companies)
For most small companies where A = N, the formula simplifies to:
Marginal Relief = 3/200 × (£250,000 – Profits)
And the tax calculation becomes:
Tax = Profits × 25% – Marginal Relief
Worked Example 1: Profits of £100,000
Company: TechCo Ltd, one company, no associated companies Accounting period: 1 April 2024 to 31 March 2025 (12 months) Taxable profits: £100,000 Augmented profits: £100,000 (no exempt distributions)
Step 1: Calculate tax at main rate
£100,000 × 25% = £25,000
Step 2: Calculate marginal relief
F × (U – A) × (N ÷ A)
= 3/200 × (£250,000 – £100,000) × (£100,000 ÷ £100,000)
= 0.015 × £150,000 × 1
= £2,250
Step 3: Calculate final tax
£25,000 – £2,250 = £22,750
Effective tax rate
£22,750 ÷ £100,000 = 22.75%
Without marginal relief, TechCo would pay £25,000 (25%). Marginal relief saves £2,250.
Worked Example 2: Profits of £70,000
Company: DesignCo Ltd, one company, no associated companies Accounting period: 1 April 2024 to 31 March 2025 Taxable profits: £70,000
Step 1: Tax at main rate
£70,000 × 25% = £17,500
Step 2: Marginal relief
3/200 × (£250,000 – £70,000) × (£70,000 ÷ £70,000)
= 0.015 × £180,000 × 1
= £2,700
Step 3: Final tax
£17,500 – £2,700 = £14,800
Effective tax rate
£14,800 ÷ £70,000 = 21.14%
Marginal relief saves DesignCo £2,700 compared to the main 25% rate.
Worked Example 3: Short Accounting Period (9 Months)
Company: BuildCo Ltd, incorporated 1 July 2024 Accounting period: 1 July 2024 to 31 March 2025 (9 months) Taxable profits: £80,000
For short accounting periods, the upper and lower limits are proportionally reduced:
- Upper limit: £250,000 × 9/12 = £187,500
- Lower limit: £50,000 × 9/12 = £37,500
Step 1: Tax at main rate
£80,000 × 25% = £20,000
Step 2: Marginal relief
3/200 × (£187,500 – £80,000) × (£80,000 ÷ £80,000)
= 0.015 × £107,500 × 1
= £1,612.50
Step 3: Final tax
£20,000 – £1,612.50 = £18,387.50
Effective tax rate
£18,387.50 ÷ £80,000 = 22.98%
Note how the short period affects the calculation — the thresholds are reduced, which slightly changes the relief amount.
Worked Example 4: Company With One Associated Company
Company: ConsultCo Ltd, one associated company (HoldCo Ltd) Accounting period: 1 April 2024 to 31 March 2025 Taxable profits: £40,000
With one associated company, the thresholds are divided by 2:
- Upper limit: £250,000 ÷ 2 = £125,000
- Lower limit: £50,000 ÷ 2 = £25,000
Since profits (£40,000) fall between £25,000 and £125,000, marginal relief applies.
Step 1: Tax at main rate
£40,000 × 25% = £10,000
Step 2: Marginal relief
3/200 × (£125,000 – £40,000) × (£40,000 ÷ £40,000)
= 0.015 × £85,000 × 1
= £1,275
Step 3: Final tax
£10,000 – £1,275 = £8,725
Effective rate
£8,725 ÷ £40,000 = 21.81%
Without understanding associated companies, ConsultCo might have assumed the 19% rate applied (since £40,000 < £50,000). But with the adjusted thresholds, marginal relief is needed to get below 25%.
Worked Example 5: Profits at the Boundaries
Exactly £50,000
Tax: £50,000 × 19% = £9,500 (small profits rate applies; no marginal relief needed)
Exactly £250,000
Tax: £250,000 × 25% = £62,500 (main rate applies; marginal relief = zero)
Just above £50,000 — say £51,000
Tax at 25%: £12,750 Marginal relief: 3/200 × (£250,000 – £51,000) = £2,985 Tax: £12,750 – £2,985 = £9,765 Effective rate: 19.15%
Notice how a £1,000 increase in profits (from £50,000 to £51,000) only increases the tax by £265. The marginal relief prevents a sudden jump from 19% to 25%.
Where Does Marginal Relief Go on the CT600?
The relevant CT600 boxes are:
- Box 440: Tax chargeable at the main rate (25%)
- Box 500: Marginal relief amount (the relief you calculated)
- Box 510: Corporation Tax chargeable (Box 440 minus Box 500, plus any other adjustments)
You also need to complete the marginal rate relief section, which includes:
- Number of associated companies
- Upper limit (adjusted if necessary)
- Lower limit (adjusted if necessary)
If you're using software like Taxpipe, all of this is calculated and populated automatically. You just enter your profits and company details, and the software does the rest. Try our calculator to see marginal relief in action.
Common Mistakes With Marginal Relief
1. Forgetting to Claim It
The biggest mistake. Many directors — especially those who used HMRC's basic free service — simply applied 25% to their profits and overpaid. If your profits are between £50,000 and £250,000, always check for marginal relief.
2. Ignoring Associated Companies
If you control multiple companies, the thresholds change. Failing to account for associated companies can mean claiming too much or too little relief.
3. Not Adjusting for Short Periods
If your accounting period is shorter than 12 months, the upper and lower limits are proportionally reduced. Filing for a 9-month period using 12-month thresholds will give incorrect figures.
4. Confusing Augmented Profits With Taxable Profits
For most small companies, these are the same. But if your company receives dividends from non-associated companies, the augmented profits (used in the denominator) will be higher than taxable profits. This reduces the marginal relief.
5. Applying the Wrong Fraction
The fraction is 3/200 (0.015). Some older resources may reference different fractions from when rates were different. Make sure you're using current figures.
How Software Handles Marginal Relief
Good CT600 filing software calculates marginal relief automatically. Here's what Taxpipe does:
- Takes your taxable profits for the period
- Checks for associated companies (you tell us how many)
- Adjusts the upper and lower limits for the period length
- Applies the marginal relief formula
- Populates the correct CT600 boxes
- Shows you the effective tax rate and total tax due
No manual calculations needed. But it's worth understanding the formula so you can verify the figures make sense.
Quick Reference: Effective Tax Rates
Here's a quick lookup table for companies with no associated companies and a 12-month accounting period ending 31 March 2025:
| Taxable profits | Tax due | Effective rate |
|---|---|---|
| £50,000 | £9,500 | 19.00% |
| £60,000 | £12,050 | 20.08% |
| £75,000 | £15,875 | 21.17% |
| £100,000 | £22,750 | 22.75% |
| £125,000 | £29,625 | 23.70% |
| £150,000 | £36,500 | 24.33% |
| £175,000 | £43,375 | 24.79% |
| £200,000 | £50,250 | 25.13% |
| £225,000 | £57,125 | 25.39% |
| £250,000 | £62,500 | 25.00% |
Wait — 25.13% at £200,000? That's above 25%? Actually, let me recalculate:
At £200,000:
- Tax at 25%: £50,000
- Marginal relief: 3/200 × (£250,000 – £200,000) = 3/200 × £50,000 = £750
- Net tax: £50,000 – £750 = £49,250
- Effective rate: 24.63%
| Taxable profits | Tax due | Effective rate |
|---|---|---|
| £50,000 | £9,500 | 19.00% |
| £60,000 | £12,150 | 20.25% |
| £75,000 | £16,125 | 21.50% |
| £100,000 | £22,750 | 22.75% |
| £125,000 | £29,375 | 23.50% |
| £150,000 | £36,000 | 24.00% |
| £175,000 | £42,625 | 24.36% |
| £200,000 | £49,250 | 24.63% |
| £225,000 | £55,875 | 24.83% |
| £250,000 | £62,500 | 25.00% |
Use our corporation tax calculator for precise figures based on your specific situation, including adjustments for associated companies and short accounting periods.
Key Takeaways
- Marginal relief applies to profits between £50,000 and £250,000 — if you're in this band, you pay less than 25%
- The formula is straightforward — 3/200 × (Upper limit – Profits)
- Thresholds reduce with associated companies — divide by number of companies plus one... actually, divide by the number of associated companies (including yours)
- Short periods need adjusted thresholds — multiply by the number of months divided by 12
- Good software calculates this automatically — but understanding it helps you verify
Calculate Your Tax Now
Don't leave money on the table. If your company's profits are between £50,000 and £250,000, marginal relief could save you up to £2,625 (the maximum relief, at exactly £50,001 in profits).
Use our free corporation tax calculator to see your exact tax position, or file your CT600 with Taxpipe and we'll calculate everything automatically — including marginal relief.
Need to file a CT600 for 2024-25? Taxpipe calculates marginal relief automatically and handles your entire CT600 submission. See pricing or try the calculator.