Marginal Relief for Corporation Tax: How It Works (With Calculation Examples)

If your company's profits are between £50,000 and £250,000, you don't pay the full 25% rate. Marginal relief reduces your tax bill — but calculating it manually is one of the trickiest parts of the CT600.

Here's how it works, with real examples.

The Three Tax Bands

From 1 April 2023, Corporation Tax has three effective bands:

Profit Range	Rate	What Happens
£0 – £50,000	19% (small profits rate)	Simple: 19% of profits
£50,001 – £250,000	19% – 25% (marginal)	Tax calculated with marginal relief formula
Over £250,000	25% (main rate)	Simple: 25% of profits

The marginal relief zone is where it gets complicated. Your effective tax rate gradually increases from 19% to 25% as profits rise through this band.

The Marginal Relief Formula

HMRC's formula for marginal relief:

Marginal Relief = Standard Fraction × (Upper Limit – Augmented Profits) × (Taxable Profits / Augmented Profits)

Where:

Standard Fraction = 3/200 (0.015)
Upper Limit = £250,000 (divided by number of associated companies + 1)
Augmented Profits = Taxable profits + exempt distributions (usually same as taxable profits for simple companies)
Taxable Profits = Your profits chargeable to Corporation Tax

The actual tax you pay:

Tax = (Profits × 25%) – Marginal Relief

Example 1: Profit of £100,000

Company: Simple trading company, no associated companies, 12-month period

Step 1: Calculate tax at main rate

£100,000 × 25% = £25,000

Step 2: Calculate marginal relief

Standard Fraction: 3/200
Upper Limit: £250,000
Augmented Profits: £100,000
Taxable Profits: £100,000

Marginal Relief = 3/200 × (£250,000 – £100,000) × (£100,000 / £100,000) = 0.015 × £150,000 × 1 = £2,250

Step 3: Tax payable

£25,000 – £2,250 = £22,750

Effective rate: £22,750 / £100,000 = 22.75%

Without marginal relief, you'd pay £25,000 (25%). Marginal relief saves £2,250.

Example 2: Profit of £75,000

Step 1: £75,000 × 25% = £18,750

Step 2: Marginal Relief = 3/200 × (£250,000 – £75,000) × (£75,000 / £75,000) = 0.015 × £175,000 × 1 = £2,625

Step 3: £18,750 – £2,625 = £16,125

Effective rate: 21.50%

Example 3: Profit of £200,000

Step 1: £200,000 × 25% = £50,000

Step 2: Marginal Relief = 3/200 × (£250,000 – £200,000) × (£200,000 / £200,000) = 0.015 × £50,000 × 1 = £750

Step 3: £50,000 – £750 = £49,250

Effective rate: 24.63%

Quick Reference: Effective Tax Rates

Profit	Tax	Effective Rate	Marginal Relief
£50,000	£9,500	19.00%	£3,000
£75,000	£16,125	21.50%	£2,625
£100,000	£22,750	22.75%	£2,250
£125,000	£29,375	23.50%	£1,875
£150,000	£36,000	24.00%	£1,500
£175,000	£42,625	24.36%	£1,125
£200,000	£49,250	24.63%	£750
£225,000	£55,875	24.83%	£375
£250,000	£62,500	25.00%	£0

Key insight: The effective rate in the marginal band is actually 26.5% on each additional pound of profit. This is because as profits increase, you lose marginal relief at the rate of 1.5p per £1 — on top of the 25% main rate.

Associated Companies: How They Reduce Your Thresholds

If you have associated companies, the £50,000 and £250,000 thresholds are divided between them.

Formula: Threshold ÷ (number of associated companies + 1)

Associated Companies	Lower Limit	Upper Limit
0	£50,000	£250,000
1	£25,000	£125,000
2	£16,667	£83,333
3	£12,500	£62,500

Example: You have 1 associated company and £100,000 profit

Upper limit: £250,000 / 2 = £125,000
Lower limit: £50,000 / 2 = £25,000
Marginal Relief = 3/200 × (£125,000 – £100,000) × 1 = £375
Tax: (£100,000 × 25%) – £375 = £24,625 (effective rate 24.63%)

Compare this to 22.75% without associated companies — that's nearly £1,875 more tax.

Financial Year Splitting

If your accounting period spans 1 April, profits are split across two financial years — each potentially with different rates.

Example: Period 1 January 2025 – 31 December 2025

FY2024 (1 Jan – 31 Mar): 90 days → 90/365 of profits
FY2025 (1 Apr – 31 Dec): 275 days → 275/365 of profits

Each portion is taxed at that financial year's rates. Since rates haven't changed between FY2024 and FY2025, this currently makes no difference — but it will matter if rates change in future budgets.

Taxpipe handles FY splitting automatically.

Where It Goes on the CT600

Marginal relief appears in the tax calculation section of your CT600:

Box	Description
315	Profits chargeable to Corporation Tax
330	Financial Year 1
335	FY1 profit
340	FY1 rate
345	FY1 tax
430	Corporation tax chargeable (before marginal relief)
435	Marginal relief (entered as the relief amount)
440	Net corporation tax (after marginal relief)

See our CT600 box by box guide for full details.

Common Mistakes

1. Forgetting Associated Companies

If you or your spouse control other companies, they're associated. This reduces your thresholds and increases your effective rate.

2. Short Accounting Periods

If your period is less than 12 months, the thresholds are proportionally reduced.

Example: 6-month period → Lower limit £25,000, Upper limit £125,000

3. Using the Wrong Rate

For periods starting before 1 April 2023, the rate was flat 19%. For periods spanning that date, you need to split and apply different rates to each portion.

4. Augmented Profits ≠ Taxable Profits

If your company receives dividends from non-associated companies, these are added to augmented profits but not to taxable profits. This can reduce your marginal relief.

Let Taxpipe Calculate It for You

Marginal relief is one of the most error-prone calculations on the CT600. Get it wrong and you either overpay (and need to claim a refund) or underpay (and face interest charges).

Taxpipe handles the full calculation automatically:

Identifies the correct thresholds
Accounts for associated companies
Splits across financial years when needed
Fills in the correct CT600 boxes

£59 per filing. Accurate every time.

Calculate your Corporation Tax now →

Marginal Relief for Corporation Tax: How It Works (With Calculation Examples)