Corporation Tax Marginal Rate in the UK
- Adil Akhtar
- Apr 28
- 15 min read
Index
Navigating the UK Corporation Tax Marginal Rate in 2025: What It Is, How It Works, and Why It Matters
Quick answer up front: As of April 2025, the UK Corporation Tax marginal rate applies to companies with profits between £50,000 and £250,000. These companies don’t pay a flat rate—instead, they benefit from Marginal Relief, which eases them between the small profits rate of 19% and the main rate of 25%. If you’re under £50k profit, you’re taxed at 19%. Over £250k? You're at the full 25%. But in between, you're in the Marginal Zone—and that’s where things get interesting (and confusing for many).
What Is Corporation Tax and Who Pays It?
Limited Companies and Taxable Profits
Corporation Tax is a business tax charged on the taxable profits of limited companies, and certain other organisations like clubs or societies. If your business is incorporated, you’re likely filing Corporation Tax returns to HMRC.
Taxable profits include:
Trading profits (from your main business activities),
Investment profits,
Chargeable gains (e.g., when selling assets like property or shares).
This tax does not apply to sole traders or partnerships—they’re taxed through Income Tax and National Insurance.
2025 Corporation Tax Rates in a Nutshell
Profit Bracket | Corporation Tax Rate | Notes |
£0 – £50,000 | 19% | This is the Small Profits Rate. |
£50,001 – £250,000 | Marginal Rate | Between 19% and 25% using Marginal Relief. |
£250,001 and above | 25% | This is the Main Rate of Corporation Tax. |
📌 Source: GOV.UK - Corporation Tax Rates and Allowances
2025 Corporation Tax Rates
Marginal Relief: The Smoother Tax Transition
What Is Marginal Relief?
Marginal Relief helps businesses gradually transition from the 19% to the 25% rate, avoiding a sudden tax hike as profits grow. It's calculated using a standard fraction of 3/200, which softens the blow for businesses just over the £50,000 threshold.
Why It Matters
Without Marginal Relief, a company making £50,001 would be taxed at 25%—a big leap for just £1 of extra profit. Instead, the relief smooths this transition. This is particularly crucial for growing small businesses, where every percentage point counts.
A Real Example: How Marginal Relief Works
Let’s walk through a complete and practical case.
Case Study: Croydon Tech Ltd (2024–2025 Tax Year)
Croydon Tech Ltd, founded by 29-year-old entrepreneur Edmund Statham, made a taxable profit of £180,000 in the 2024–2025 tax year. Here’s how Edmund’s accountant, using the HMRC Marginal Relief formula, worked out the Corporation Tax:
Step-by-step:
Profit = £180,000
Lower limit = £50,000
Upper limit = £250,000
Standard fraction = 3/200
Marginal Relief Calculation:
Tax at main rate = £180,000 × 25% = £45,000
Marginal Relief = (£250,000 − £180,000) × 3/200 = £1,050
Corporation Tax Due = £45,000 − £1,050 = £43,950
So Edmund pays £43,950—not the full £45,000. That’s the magic of Marginal Relief.
Ring Fence Companies: Higher Stakes
If your business profits come from UK oil extraction or oil rights, you’re taxed under ring fence rules. Here’s what applies:
Profit Bracket | Corporation Tax Rate (2023–2025) |
Under £50,000 | 19% |
£50,001 – £250,000 | Marginal Relief applies |
Over £250,000 | 30% |
Ring Fence Fraction: 11/400(Slightly different from the standard 3/200 used for most companies.)
📌 Note: Ring fence taxation is niche but relevant to energy companies and certain offshore entities.
What Changed—and Why It’s Critical in 2025
Before 2023, there was just one Corporation Tax rate (19%). But from 1 April 2023 onwards, the UK returned to a tiered system:
To raise revenue post-pandemic and manage inflationary pressures.
To target bigger companies without overburdening small businesses.
This remains the framework in 2025. But with inflation, wage pressures, and sector-specific taxes (like windfall levies on energy firms), businesses must be extra careful with how they report and forecast profits.
Key Pain Points for UK Business Owners
Let’s get real. Here's where businesses often run into trouble when dealing with Corporation Tax marginal rates:
1. Payroll and PAYE Confusion
Some directors pay themselves low salaries and take dividends. But this can lead to PAYE complications if not balanced right—and errors here can artificially lower or inflate profits, skewing Corporation Tax bands.
2. Emergency Tax Codes Affecting Real Profits
Yes, even a director on PAYE can end up on an emergency tax code if HMRC doesn’t have the latest employment info. This can result in incorrect deductions and cashflow issues if not spotted early.
🛠️ Tip: Always check your PAYE codes via HMRC Personal Tax Account.
3. Missing Marginal Relief Eligibility
Some business owners don't realise they qualify. If your tax software or accountant doesn’t apply the Marginal Relief calculation, you might be overpaying Corporation Tax.
Frequently Overlooked: Associated Companies Rule
From April 2023 onwards (and still valid in 2025), associated companies must share the profit thresholds. That means if you control multiple companies, the £50,000 and £250,000 bands are divided across them.
Example:
Eleanor owns:
GreenLoft Ltd (Profit: £30,000)
BrightMod Ltd (Profit: £80,000)
Together, they total £110,000. But for tax, each company’s thresholds are split:
Lower limit = £25,000 per company
Upper limit = £125,000 per company
So, BrightMod Ltd no longer qualifies for the 19% rate alone—it enters the marginal zone.
What to Do Now
📌 Check your current profit forecast.
📌 Use HMRC’s Marginal Relief Calculator (find it linked under "Corporation Tax Marginal Relief" on GOV.UK). Or use our Easy-to Use calculator below.
📌 Plan salary vs dividends carefully to optimise tax positioning.
📌 Review any associated companies that might affect your thresholds.
Corporation Tax Marginal Rate Calculator
Unlocking Profit-Efficient Strategies Within the UK Corporation Tax Marginal Zone (2025 Edition)
Once you understand the UK Corporation Tax marginal rate mechanics, the next question is this: How can your business use this knowledge to reduce its tax bill without crossing the line? This section breaks it down with real examples, shows you how marginal relief calculations actually work, and uncovers costly pitfalls businesses fall into when transitioning through the £50k–£250k profit band.
How the Marginal Relief Formula Really Works
The Official Formula
If your profits are between £50,000 and £250,000, you pay the main rate of 25% on all profits but reduce it using Marginal Relief.
Here’s how it’s officially calculated:
Marginal Relief = (Upper limit – Profits) × Standard fraction / Taxable profits
Where:
Upper limit = £250,000
Lower limit = £50,000
Standard fraction = 3/200
So, if your company makes £120,000 in taxable profit:
Marginal Relief = (£250,000 - £120,000) × (3/200) / £120,000
Marginal Relief = £130,000 × 0.015 / £120,000
Marginal Relief = £1,950 / £120,000
Effective rate = 25% - 1.625% = 23.375% approximately
So, even though you’re in the marginal zone, you’re not paying the full 25%, nor are you stuck at 19%. You’re somewhere in between—more accurately and fairly taxed on your actual profit.
Visualization of How the Marginal Relief Formula Really Works
Strategy 1: Targeting the ‘Sweet Spot’ Band
Let’s say your projected profits are coming in around £260,000. That’s above the marginal relief cap. You’d lose relief entirely and pay the full 25%.
Real-World Adjustment Example: Norbert’s Niche Logistics Ltd
In early 2025, Norbert Langley, owner of a warehousing business in Leeds, was forecast to hit £255,000 in profits. His accountant advised him to invest £10,000 in new machinery before year-end—bringing profits down to £245,000 and back into marginal relief eligibility.
Before planning:
Profit: £255,000
Tax: £255,000 × 25% = £63,750
After planning:
Profit: £245,000
Marginal relief: (£250,000 − £245,000) × 3/200 = £75
Tax: £245,000 × 25% = £61,250 − £75 = £61,175
💡 Smart move: That £10,000 investment netted him a £2,575 tax saving and upgraded operations too. Strategic expenditure in Q4 can shift you into a lower effective tax bracket.
Strategy 2: Optimal Director Salary vs. Dividends
Many UK small business owners pay themselves a modest salary plus dividends. But done wrong, this can inflate profits and reduce Marginal Relief.
Example Breakdown: Dividends vs. Salary Trade-Off
Imagine:
Director A pays themselves £12,570 salary + £30,000 dividends
Director B pays £9,100 salary + £35,000 dividends
If the dividend push nudges total profits above £50,000, Director B’s company loses part of its Marginal Relief.
A smart payroll model can keep the business in the 19% band or reduce the effective rate through better balance.
🛠️ Use the HMRC Personal Tax Checker to verify PAYE accuracy:👉 Check your Income Tax - GOV.UK
Strategy 3: Watch Out for Associated Companies
From April 2023 (still true in 2025), the limits for Marginal Relief are split between associated companies—those under common control.
What Counts as Associated?
Same person controls multiple companies (even passive control)
Companies share the same majority shareholders
Even dormant or low-profit companies count toward the threshold split
Case Example: Elsie’s Eateries Group Ltd
Elsie owns:
Elsie’s Tea Room Ltd
Elsie’s Pies Ltd
Elsie’s Baking Co Ltd
Each turns modest profits (£40k–£80k). But since they’re under her control, the £50k lower and £250k upper limits are split three ways:
New lower limit per company = £16,667
New upper limit per company = £83,333
So instead of enjoying 19% rates across the board, all companies enter the marginal zone. This surprise cost Elsie £5,600 in extra Corporation Tax last year—money she could’ve reinvested or used to improve facilities.
🛠️ Pro tip: If one business is dormant or can be merged without strategic loss, consolidating ownership can restore full relief for the remaining entity.
What Happens If You Overpay?
Refunds and Tax Credits
If you incorrectly filed without applying Marginal Relief, or used the wrong profit thresholds, you can amend your CT600 return up to 12 months after the filing deadline.
Your business may then be eligible for:
A direct refund
Offsetting the excess against your next Corporation Tax bill
But here’s the kicker: many businesses don’t even realise they’re eligible unless an accountant spots it during annual reviews.
🛠️ HMRC Self-Correction Portal:👉 Company Tax Return online - GOV.UK
Emergency Payroll Errors That Hit Your Tax Bill
We need to talk about something sneaky but serious: emergency tax codes and bad payroll software can inflate your tax bill by artificially increasing year-end profit totals.
Case Study: Lorna’s Boutique Ltd
Lorna uses a basic online payroll tool. It accidentally applied the 1257L code as a "non-cumulative" emergency code to her part-time assistant’s payslip. The assistant was overtaxed by £900, which Lorna repaid as a goodwill gesture.
Come year-end, HMRC saw a higher salary bill than actual, miscalculating her profit for tax at £52,000 instead of £48,000. That pushed her into marginal relief, costing her an extra £580.
📌 Takeaway: Always reconcile real vs. payroll-stated income when submitting tax returns, or you might enter the marginal zone without meaning to.
Don’t Forget: Chargeable Gains Count Too
Profits from asset sales—called chargeable gains—also feed into your taxable profits. If your core trading profit is under £50k but you sell a company car or a commercial property, it can push you into the marginal band.
Example: Bartholomew’s Plumbing Services Ltd
Normal profit: £42,000Sold old company van: gain of £12,000
New profit for Corporation Tax: £54,000Now taxed at marginal rate, not 19%
💡 Planning tip: If a sale is non-urgent, defer to the next financial year to stay in the lower bracket this year.
Navigating the Transition Zone with Confidence
This £50k–£250k profit range might seem like a minefield—but it’s also where some of the most powerful Corporation Tax planning opportunities exist. If you know how to:
Time purchases,
Allocate salaries and dividends smartly,
Structure or merge companies wisely,
Check for overpaid or missing Marginal Relief...
…then you’re not just paying tax—you’re strategically managing your business’s cash flow.
UK Corporation Tax Dashboard: Rates, Revenue & Global Context (2020-2025)
Leveraging R&D Relief and Capital Strategies to Reduce Your Corporation Tax in the Marginal Zone
If your company is navigating the £50k–£250k profit band, maximising reliefs like R&D tax credits or strategic capital allowances can make or break your effective Corporation Tax bill. But here’s the kicker—many UK SMEs unknowingly sabotage their marginal relief eligibility by mishandling claims or timing them poorly. This guide walks you through exactly how to avoid those mistakes and make the tax system work for your business in 2025.
R&D Tax Relief and the Marginal Zone: A Perfect Pair (If Done Right)
What’s New in 2025
If your accounting period starts on or after 1 April 2024, you’re under the merged R&D scheme, replacing the former SME and RDEC schemes.
Under this:
You can deduct an extra 86% of qualifying R&D costs from your taxable profit (on top of 100% deduction),
And claim a payable credit worth up to 10% (or 14.5% if your R&D spend is intense enough—i.e., at least 30% of your total expenditure).
✅ Source: HMRC R&D Relief for SMEs – GOV.UK
Example: Combining R&D and Marginal Relief Smartly
Let’s say Tobias & Co Ltd, a small AI startup in Bristol, made £175,000 profit but spent £70,000 on qualifying R&D (40% of total spend).
Their effective taxable profit:£175,000 − (£70,000 × 86%) = £114,800
Taxed using marginal relief: Apply marginal relief to £114,800 instead of the full £175,000, significantly reducing Corporation Tax.
💡 Hot tip: R&D claims reduce the “profit” that HMRC considers for Corporation Tax, meaning you can drop into a lower rate or re-qualify for Marginal Relief even if your initial profit exceeded £250,000.
The PAYE Cap Pitfall: Don’t Miss This Hidden Limit
Since 2021, R&D cash credits are capped based on PAYE + NIC liabilities unless you're exempt.
Cap formula: £20,000 + 300% of total PAYE & NIC liabilities
If you’re a director-only company with low payroll, your credit could be blocked.
Fix? Consider:
Hiring a staff member to increase your PAYE base,
Or adjusting your salary temporarily to meet the cap.
🛠️ Real-life saver: This can mean the difference between a £25k refund and £0, so if you’re claiming R&D and marginal relief, double-check that PAYE/NIC numbers align.
Capital Allowances: Tactical Timing Can Drop You Below Thresholds
What They Are
Capital Allowances let you deduct the cost of big-ticket items—like machinery, IT systems, or company vehicles—from your taxable profits.
Full expensing (100% first-year deduction) now applies to qualifying plant and machinery.
Annual Investment Allowance (AIA) lets you deduct up to £1m of qualifying expenditure.
How to Use It
If you’re just over the £250,000 profit mark, investing £10k–£20k in new equipment can pull you into the marginal zone, unlocking relief + future depreciation benefits.
Real Example: Bridgeton Beverages Ltd
In FY 2024–25:
Profit before allowance = £260,000
Bought bottling line for £30,000 (full expensing eligible)
New profit = £230,000
With this shift, they dropped into the marginal zone and claimed:
Capital Allowance of £30k
Marginal relief of (£250,000 − £230,000) × 3/200 = £300
Tax saving = £300 + £7,500 (from 25% of £30k) = £7,800
Planning For Refunds and Overpaid Tax: A Quiet Opportunity
If you’ve:
Underused Capital Allowances,
Missed an R&D claim,
Or filed early without updated payroll data…
You might be eligible for a Corporation Tax refund even after you’ve already paid.
How?
You can resubmit your CT600 return up to 12 months after the statutory filing deadline.
👉 Use HMRC's Corporation Tax Service to make amendments and request refunds online.
🧠 Pro insight: Many companies overpay when rushing to meet filing deadlines. Take your time, optimise your figures, and resubmit if needed.
Missteps That Push You Into Full Rate—And How to Dodge Them
1. Failing to Include Linked Companies
R&D and marginal relief limits must consider linked or partner companies, especially under the EU definitions HMRC still uses.
If you:
Own >25% of another company,
Share control with a spouse or business partner, …you must combine financials.
Failing to do so? You might think you’re under £250k when in fact, you’re over—and get taxed accordingly.
2. Mistiming Your Claims
Pushing your R&D or capital claims into the wrong accounting period? You might lose relief eligibility this year—and pay 25% instead of 21–23%.
Fix:
Align spending with fiscal year ends.
Keep detailed ledgers showing when costs were incurred, not just paid.
The “Wrong Software” Risk: Silent Overpayments
Some popular tax software used by small firms:
Doesn’t auto-apply marginal relief
Misses R&D adjustments in the profit calc
Ignores associated company declarations
🧠 Fix: Either ensure your accountant manually enters the Marginal Relief calculation—or use HMRC’s dedicated calculator before finalising returns.
Final Action Plan: Get Your Corporation Tax to Work for You
Here’s what to do right now if you’re a UK company expecting profits between £50k and £300k in FY 2024–25:
✅ 1. Forecast Your Profit Accurately
Break it down monthly so you can time claims or investments wisely.
✅ 2. Run a Marginal Relief Simulation
Use HMRC’s manual formulas—or validated calculators—before filing.
✅ 3. Consider R&D or Full Expensing as Threshold Tools
A well-timed investment or claim can cut your effective tax rate by up to 6%.
✅ 4. Check PAYE Compliance
Especially if you're also claiming R&D credits—make sure you’re not breaching the credit cap.
✅ 5. File Amendments if You’ve Missed Out
HMRC will refund overpayments, but they won’t chase you to tell you you’ve overpaid.
Optimizing Corporation Tax
UK R&D Tax Relief and Corporation Tax Strategy Dashboard 2020-2025
Summary of All the Most Important Points Mentioned In the Above Article
UK companies with profits under £50,000 pay Corporation Tax at 19%, those over £250,000 pay 25%, and those in between qualify for marginal relief.
Marginal relief reduces the effective tax rate on profits between £50,000 and £250,000 using a standard fraction of 3/200.
Profits must be calculated accurately, especially when considering payroll structures, dividends, and associated company rules, which affect relief eligibility.
Companies should use HMRC’s formula or calculator to ensure marginal relief is correctly applied and avoid overpaying tax.
Associated companies under the same control split the marginal relief thresholds, reducing each company's lower and upper limits.
Strategic investments or capital purchases before year-end can reduce taxable profits and help regain eligibility for marginal relief.
R&D tax relief can significantly lower taxable profits and works synergistically with marginal relief to reduce Corporation Tax liability.
Businesses must meet the PAYE/NIC cap to claim full R&D credits, especially in director-only companies with low payrolls.
Missed claims, emergency tax codes, or incorrect software calculations can lead to overpayment, which can be corrected by amending the CT600 return.
Careful planning around capital allowances, R&D, and salary structures can result in thousands saved on Corporation Tax annually.
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