If your company or organisation's profits are above the threshold for paying Corporation Tax at the 'small profits rate' but less than the threshold for paying Corporation Tax at the main rate, you may be able to claim Marginal Relief.
This guide explains what Marginal Relief is, who can claim it, how it's calculated and how to claim it.
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There are currently two rates of Corporation Tax. Which one you pay depends on the level of your company or organisation's taxable profits:
If your company or organisation's taxable profits lie between these two limits (currently £300,000 and £1.5 million), then your company may be able to claim Marginal Relief and therefore pay less Corporation Tax.
Marginal Relief is available if your company or organisation's taxable profits are at an annual rate that is above the lower limit (£300,000) but equal to or below the upper limit (£1.5 million).
However, if your company has associated companies, the limits (for all the associated companies) are reduced by dividing them by the number of companies that are associated.
Companies that are close investment-holding companies at the end of a Corporation Tax accounting period can't claim Marginal Relief.
Find the definition for associated companies in the glossary
Find more information about associated companies
Find Corporation Tax rates including Marginal Relief rates and limits
If your company or organisation qualifies for Marginal Relief, then you start by calculating Corporation Tax due at the main rate, as normal. You then work out how much relief you are entitled to, and subtract this relief from the Corporation Tax due, to arrive at the amount you need to pay.
Use an online tool to calculate Marginal Relief
If your company or organisation's accounting period spans two financial years and the tax rates have changed during that time, you will have to carry out two calculations, apportioning the profits according to how many days of your accounting period fall in each financial year. You'll also need to apportion the lower and upper limits that apply to your company for Marginal Relief in the same way, and use the appropriate Corporation Tax main rate percentage and standard fraction for each financial year, if they have changed.
If your company has profits from ring fence activities (companies engaging in some UK Continental Shelf oil-related activities), any relief that may be claimable on the Corporation Tax due on those profits is calculated in the same way, but the Corporation Tax main rate and the Marginal Relief fraction - known as the ring fence fraction - may be different. You also won't be able to use the HMRC Marginal Rate Relief calculator and will need to calculate any relief manually.
Find Corporation Tax and Marginal Relief rates and limits
The following calculation steps are for a company with no associated companies, and a 12-month accounting period falling wholly within one financial year. But remember, you may be able to use the HMRC calculator to do this for you.
Please note: all the box numbers mentioned below refer to boxes on form CT600.
First, check that the profits are above the lower limit for Marginal Relief (currently £300,000) but equal to or below the upper limit (currently £1,500,000).
Put an X in Box 42 to indicate that you're claiming Marginal Relief.
Prepare the following figures:
Calculate the Corporation Tax due at the main rate on the taxable total profits. This goes into Box 63.
Calculate the profits X on which relief is allowable using the following formula:
X = (U - A) × N ÷ A
Where U is the upper limit (in this case £1.5 million)
Calculate the amount of relief allowable on the profits X, by multiplying X by the standard fraction (see the link below). Put the amount of relief in Box 64.
Find Corporation Tax rates including Marginal Relief limits and fractions
Find more about calculating Marginal Relief
Use an online tool to calculate Marginal Relief if you have no profit from ring fence activities
Reduce the figure for Corporation Tax due by subtracting the relief allowable from it. Put this figure in both Box 65 and Box 70.
Write down and document your calculation because you'll need to send it in with your Company Tax Return to claim Marginal Relief. See the section in this guide on how to claim Marginal Relief.
Where there are associated companies, please follow the same steps (above) but at Step 3 remember to reduce the upper limit (U) by dividing it by the number of companies which are associated - for example, if your company has one associated company, divide U by two.
Calculating Marginal Relief for a company with:
Calculation step |
Result |
|---|---|
Step 1: work out total taxable profits |
£1,000,000 |
Step 2: calculate Corporation Tax due at the main rate of 26 per cent |
£260,000 |
Step 3: subtract total taxable profits from upper limit for Marginal Relief (there are no associated companies) |
£1,500,000 - £1,000,000 = £500,000 |
Step 4: multiply by the standard fraction 3/200 to calculate the relief you can claim |
£500,000 × 3 ÷ 200 = £7,500 |
Step 5: deduct the relief from the Corporation Tax due |
£260,000 - £7,500 = £252,500 |
Please note: this example demonstrates how to calculate relief when Corporation Tax rates change.
Because the company's accounting period straddles two financial years, you need to apportion both the company's profits and the upper limit for the standard fraction between those two years to calculate the correct amount of relief.
There are 365 days in the company's accounting period, of which 90 occur in the 2010 financial year. 90 days of the accounting period fell in the 2010 financial year so you use the fraction 90/365 for your calculations for that year, and 275/365 for the 2011 financial year.
You need to do two calculations, one for the financial year 2010 and one for the financial year 2011.
Calculating Marginal Relief for a company with:
2010 calculation step |
Result |
|---|---|
Step 1: work out total taxable profits for financial year 2010 |
£1,000,000 × 90 ÷ 365 = £246,575 |
Step 2: calculate Corporation Tax due at the main rate of 28 per cent |
£246,575 × 28 per cent = £69,041 |
Step 3: subtract total taxable profits from upper limit for Marginal Relief |
£1,500,000 × 90 ÷ 365 - £246,575 = £123,288 |
Step 4: multiply by the standard fraction 7/400 to calculate the relief you can claim |
£123,288 × 7 ÷ 400 = £2,158 |
Step 5: deduct the relief from the Corporation Tax due |
£69,041 - £2,158 = £66,883 |
2011 calculation step |
Result |
|---|---|
Step 1: work out total taxable profits for financial year 2011 |
£1,000,000 × 275 ÷ 365 = £753, 425 |
Step 2: calculate Corporation Tax due at the main rate of 26 per cent |
£753,425 × 26 per cent = £195,890 |
Step 3: subtract total taxable profits from upper limit for Marginal Relief |
£1,500,000 × 275 ÷ 365 - £753,425 = £376,712 |
Step 4: multiply by the standard fraction 3/200 to calculate the relief you can claim |
£376,712 × 3 ÷ 200 = £5,651 |
Step 5: deduct the relief from the Corporation Tax due |
£195,890 - £5,651 = £190,239 |
The total Corporation Tax due for the accounting period is simply the results of your two calculations added together:
£66,883 + £190,239 = £257,122
To claim Marginal Relief, you need to carry out the calculations shown above (or use the online tool), and put the results of your calculation in the appropriate boxes form CT600.
You will also need to send your calculations to HMRC as part of your Company Tax Return, to show how you arrived at the figures, and keep a copy with your records.
Completing and filing your Company Tax Return
Your Marginal Relief calculations - which will be included as part of your tax computations - must be submitted in Inline eXtensible Business Reporting Language (iXBRL) format.
