Corporation Tax 19% or 25%?

If your company profits sit between £50,000 and £250,000, marginal relief can soften the jump from 19% to 25% Corporation Tax.

The Corporation Tax main rate applies to companies with taxable profits above £250,000 and is currently set at 25%. Companies with profits of up to £50,000 are subject to the Small Profits Rate, which remains at 19%.

For companies with profits falling between £50,000 and £250,000, marginal relief applies. This creates a gradual increase in the effective rate of Corporation Tax between the small profits and main rates, rather than a sudden jump. The lower and upper profit limits are proportionately reduced where an accounting period is shorter than 12 months or where a company has associated companies.

The effect of marginal relief is that the effective Corporation Tax rate increases steadily from 19% once profits exceed £50,000, reaching the full 25% rate when profits exceed £250,000.

In practice, Corporation Tax is calculated by applying the main rate of 25% to total taxable profits and then deducting the marginal relief due. The marginal relief standard fraction is 3/200. HMRC provides an online marginal relief calculator to help companies determine the correct amount of Corporation Tax payable based on their profit level and circumstances.

If you need tax advice, give our expert and friendly team a call on 01380 723692 or email us here.