UK Corporation Tax Marginal Relief (2026/27)

QWhat are the Corporation Tax rates?

From April 2023: Small Profits Rate 19% on profits up to £50,000. Main Rate 25% on profits from £250,000. Between £50,000 and £250,000: tapered "marginal relief" creates an effective marginal rate of approximately 26.5% on profits in that zone. The thresholds apply per accounting period - typically 12-month company year. Cumulative profits NOT relevant - only that year's profit. Most UK small companies pay 19% (under £50k). Many mid-sized profitable SMEs pay the 26.5% marginal rate (£50k-£250k zone).

QHow does marginal relief work?

Sections 18-23 CTA 2010 (formula in Section 19). Marginal Relief = (£250,000 - profits) × 3/200. Effect: profits in the £50k-£250k zone effectively taxed at 26.5%. Worked example: company profit £150,000. Standard 25% on full £150k = £37,500. Marginal Relief = (£250k - £150k) × 3/200 = £100k × 1.5% = £1,500. Less marginal relief: £37,500 - £1,500 = £36,000. But Small Profits Rate on first £50k: £50k × 19% = £9,500. So actual: £9,500 (small) + £26,500 (£100k × 26.5% in marginal zone) = £36,000. Confirms marginal rate of 26.5% in the £50k-£250k zone. This is HIGHER than the £250k+ main rate (25%) - creating an incentive to either stay below £50k OR push above £250k for the headline 25%.

QWhat's the "associated companies" trap?

If your company has "associated companies" (companies under common control), the £50k + £250k thresholds are DIVIDED by the number of associated companies. Two associated companies: thresholds become £25k + £125k each. Three: £16,667 + £83,333 each. So group structures with multiple companies face significant compression of thresholds. "Associated" includes companies controlled by the same person OR same group of persons. Family-controlled companies often inadvertently associated. Major implication: structuring family companies needs care to avoid threshold dilution. Get specialist advice for multi-company structures.

QWhy is the £50k-£250k zone 26.5%?

Mathematical quirk of the marginal relief formula. The formula assumes a 25% base rate + applies marginal relief at 1.5% on the excess over profits. So in the £50k-£250k zone, the EFFECTIVE rate on each marginal £1 of profit is 26.5%. Above £250k, the relief is exhausted + you pay flat 25%. Below £50k, the Small Profits Rate of 19% applies. The 26.5% zone creates the "marginal rate trap" - earning £1 of profit in the £50k-£250k range costs you 26.5p in tax, MORE than the 25% main rate. Some companies deliberately push profit above £250k (via accelerated income recognition) to escape the marginal zone - though usually the difference isn't worth complex tax structuring.

QHow can I reduce CT into a lower band?

Profit reduction strategies: (a) Pension contributions: employer pension contributions to director / employee Self-Invested Personal Pension (SIPP) are deductible from corporate profit. Up to £60k Annual Allowance per beneficiary. Major lever - £50k+ profit reduction often achievable. (b) R&D Tax Credit: see our R&D guide. Up to 20% credit on qualifying R&D. (c) AIA Annual Investment Allowance: 100% first-year capital allowance on £1m of qualifying plant + machinery. (d) Patent Box: 10% effective rate on patent profits. (e) Director salary up to Personal Allowance: £12,570 salary deductible from profit (subject to Class 1 employer NI 15% above £5k). Practical: a company at £150k profit could reduce to £60k profit via: £40k director salary + £40k pension + £10k R&D credit = back into small profits rate.

QShould I time profits across accounting years?

Yes - if your profit fluctuates near threshold boundaries. Profit smoothing: alternative if one year is going to hit £250k+ + next year will be below £50k. Move expenses forward (pre-pay), defer revenue recognition where legitimate. Each year smoothed at the small / marginal rate beats one year at main rate + one at small. Change accounting year: extending or shortening accounting periods can split profits between threshold buckets. Maximum 18-month accounting period in any change. Companies House approval required. Useful for one-off restructuring; not a recurring tool. Avoid: artificial profit shifting between years (HMRC anti-avoidance under GAAR if engineered solely for tax).

QHow are losses + carry-forward handled?

Corporation Tax losses: (a) Set-off vs current year: trading losses offset against current year profits + reduce CT. (b) Carry-back 12 months: standard loss can be carried back 1 year to recover prior CT paid. (c) Carry-forward indefinitely: unused losses carried forward without time limit (since 2017 reforms). (d) £5m / 50% loss restriction: from April 2017, carried-forward losses limited to £5m + 50% of profits above £5m (only affects very large companies). For most SMEs: losses are valuable + carry forward freely. Strategy: accelerate any deductibles in profitable years to reduce taxable profit; balance with maintaining cash flow.

QWhat about Quarterly Instalment Payments?

Companies with augmented profits (taxable profit + dividends received from non-group companies) above £1.5m must pay CT in quarterly instalments rather than 9 months + 1 day after year-end. Effect: 1st instalment 6 months 13 days into year, 2nd quarterly thereafter. Major cash flow burden. Threshold reduces to £1.5m / number of associated companies. From April 2023, "very large" companies (augmented profits above £20m) make instalment payments 6 months earlier than standard - 3 months 13 days into year for 1st. Most SMEs unaffected. Group structures should watch the associated company impact - threshold can compress to under £100k effectively.