Marginal Relief is the mechanism that stops the jump from 19% to 25% happening in a single step. HMRC describes it as providing a gradual increase in Corporation Tax rate between the small profits rate and the main rate, and that is exactly what it does: a company in the band is charged at the main rate and then given a deduction that rises and falls with where in the band its profit sits.
What the relief is and when it applies
From 1 April 2023 the rate structure has been 19% for taxable profits below £50,000 and 25% for taxable profits above £250,000. A company whose taxable profits fall between those two limits may claim Marginal Relief. The relief is not a third rate and it is not a band charge: the whole profit is charged at 25% and the relief is then deducted, which produces an effective rate somewhere between the two headline figures. The closer profit sits to the upper limit, the smaller the relief, until at £250,000 it disappears entirely.
The limits move before you check them
The £50,000 and £250,000 figures are not fixed for every company. HMRC reduces both proportionately if the accounting period is shorter than twelve months, and reduces both by the number of associated companies. The published example is a company with three other associated companies: the limits are divided by four, so the lower limit becomes £12,500 and the upper limit £62,500. A company making £100,000 of profit with no associates is comfortably in the relief band; the same company with three associates is above the upper limit and pays the full main rate.
Who cannot claim it
Marginal Relief is not available to every company in the band. Close investment holding companies are excluded, as are companies not resident in the United Kingdom, and the relief does not apply to ring fence profits from oil rights or extraction, which carry their own rates entirely. If a company is in the band and finds no relief coming through, the exclusions are the first thing to check, followed by the associated companies count, because those two account for nearly every case where the arithmetic looks wrong.
Questions people ask about corporation tax marginal relief
What profits qualify for marginal relief?
Taxable profits between £50,000 and £250,000 from 1 April 2023, with both limits proportionately reduced for a short accounting period and divided by the number of associated companies.
Is marginal relief a separate tax rate?
No. The whole profit is charged at the 25% main rate and the relief is then deducted, which produces an effective rate between 19% and 25% rather than a third published rate.
Who cannot claim marginal relief?
Close investment holding companies and companies that are not resident in the UK. Ring fence profits from UK oil rights or extraction are outside the relief too, and are taxed under their own rates.