The rate of Corporation Tax payable depends mainly on the level of a company’s taxable profits. The main rate is 25% and applies where profits exceed £250,000. Companies with profits of £50,000 or less generally pay Corporation Tax at the small profits rate of 19%. But note, these two thresholds will reduce if a company has associated companies.

The position is more complicated for companies with profits between these two thresholds. Where profits are between £50,000 and £250,000, Corporation Tax is charged at the 25% main rate, but marginal relief reduces the overall amount of tax payable. Accordingly, the effective rate increases gradually as profits rise, rather than jumping immediately from 19% to 25%.

This means that a company whose profits are just above £50,000 will not suddenly pay 25% Corporation Tax on all its profits but if there are profits are close to £250,000 they will pay tax at almost the 25% rate. In this way, the marginal relief results in a smoother transition between the two rates. 

Corporation Tax is initially calculated at the main rate of 25%, with marginal relief then deducted to arrive at the final liability. The relief is calculated using a standard fraction of 3/200.

Companies should check which rate applies when preparing their Corporation Tax calculation, particularly where profits are close to either threshold.

The thresholds can be affected by the number of associated companies, so a company should not assume that its profit figure alone determines the applicable rate. It is important to ensure that the correct amount of Corporation Tax is paid.