CT600 Marginal Relief Explained — How to Calculate Corporation Tax 2024-25

What Is Marginal Relief?

Since April 2023, UK corporation tax has a two-rate system:

• 19% on profits up to £50,000 (small profits rate)
• 25% on profits over £250,000 (main rate)

Marginal relief is the mechanism that smoothly transitions between these rates for companies with profits between £50,000 and £250,000. Without it, a company earning £50,001 would suddenly jump from 19% to 25% — an unfair cliff edge.

How Does Marginal Relief Work?

The formula HMRC uses:

Marginal Relief = (Upper Limit - Taxable Profits) × Taxable Profits/Augmented Profits × 3/200

Where:

• Upper Limit = £250,000 (divided by number of associated companies + 1)
• Lower Limit = £50,000 (divided by number of associated companies + 1)
• Augmented Profits = Taxable Profits + Exempt Distributions (usually equals Taxable Profits for most small companies)
• 3/200 = the marginal relief fraction (0.015)

The relief is then subtracted from the tax calculated at the main rate (25%).

Worked Example: £120,000 Profit

Let's calculate corporation tax for a company with £120,000 taxable profit, no associated companies, no exempt distributions.

Step 1: Calculate tax at main rate

£120,000 × 25% = £30,000

Step 2: Calculate marginal relief

(£250,000 - £120,000) × £120,000/£120,000 × 3/200
= £130,000 × 1 × 0.015
= £1,950

Step 3: Subtract relief from tax

£30,000 - £1,950 = £28,050

Effective rate: £28,050 / £120,000 = 23.375%

Compare this to:

• 19% rate = £22,800 (if profits were under £50,000)
• 25% rate = £30,000 (if no marginal relief)

The relief saved this company £1,950.

The Effective Rate Curve

Try Taxpipe's free calculator to see your exact rate.

What About Associated Companies?

If you (or close family members) control more than one company, the £50,000 and £250,000 thresholds are divided by the total number of associated companies.

Example: You and your spouse each have a company (2 associated companies total).

• Upper limit: £250,000 / 2 = £125,000
• Lower limit: £50,000 / 2 = £25,000

So marginal relief applies between £25,000 and £125,000 instead.

What counts as associated?

• Companies under common control (you own >50%)
• Includes companies controlled by "associates" (spouse, children, business partners)
• Excludes dormant companies (as of April 2023)

Report the number of associated companies in Box 326 of your CT600.

Split Accounting Periods

If your accounting period spans two financial years (e.g., 1 January 2024 to 31 December 2024), your profit is apportioned between the two years, and marginal relief is calculated separately for each.

HMRC uses a days-based apportionment:

FY2023 profit = Total profit × (days in FY2023 / total days)
FY2024 profit = Total profit × (days in FY2024 / total days)

The thresholds are also prorated by the number of days in each financial year within your accounting period.

This is one area where software really helps — the calculations are fiddly, especially around leap years. Taxpipe handles all of this automatically.

Where Does Marginal Relief Appear on the CT600?

Your software fills these in based on your profit level and number of associated companies.

Tips for Maximising Marginal Relief

1. Claim all allowable expenses — Lower profits mean more relief (and lower tax overall)
2. Pension contributions — Employer pension contributions reduce taxable profits
3. Capital allowances — Claim AIA on equipment purchases
4. Salary vs dividends — A director's salary is a deductible expense; dividends are not
5. Timing of income — If you're near a threshold, consider timing of invoices

Common Mistakes

Forgetting Associated Companies

Having associated companies reduces your thresholds. Forgetting to declare them means you calculate relief at the wrong rates.

Applying the Wrong Rate

Some directors assume 19% applies to all small companies. It doesn't — if your profits exceed £50,000, you need marginal relief calculations.

Manual Calculation Errors

The formula involves fractions and prorating. Rounding errors can cause HMRC validation failures. Let software handle it.

Calculate Your Corporation Tax Now

Taxpipe's free calculator shows your exact corporation tax including marginal relief. Enter your profit, number of associated companies, and accounting period — get an instant breakdown.

When you're ready to file, submit your CT600 for £59.