- Making a loss and Corporation Tax
- Capital allowances and Corporation Tax
- Research and Development (R&D) Relief for Corporation Tax
- Marginal Rate Relief for Corporation Tax
- Claims and elections for Corporation Tax
Marginal Rate Relief for Corporation Tax
If your company or organisation's profits are above the threshold for paying Corporation Tax at the lower rate (the 'small companies' rate) but less than the threshold for paying Corporation Tax at the main rate, you may be able to claim Marginal Rate Relief.
If so, then the effective rate of Corporation Tax your company pays rises gradually from the lower rate to the main rate, depending on the level of your taxable profit.
On this page:
- What is Marginal Rate Relief?
- Marginal Small Companies' Relief (MSCR)
- How to calculate Marginal Small Companies' Relief
- Calculating MSCR - examples
- How to claim Marginal Small Companies' Relief
- Marginal Starting Rate Relief (MSRR)
- More useful links
What is Marginal Rate Relief?
There are currently two rates of Corporation Tax. Which one you pay depends on the level of your company or organisation's taxable profits:
- the lower rate - 21 per cent for 2009 - known as the 'small companies' rate (although it's based on the amount of taxable profits rather than the overall size of a company)
- the higher rate - 28 per cent for 2009 - known as the 'full' rate or 'main' rate
Marginal Rate Relief provides, in effect, a sliding scale rate of Corporation Tax for companies whose profits are between the profit thresholds for the two rates. 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 Rate Relief and so pay less Corporation Tax.
Marginal Small Companies' Relief (MSCR)
Marginal Small Companies' 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 Small Companies' Relief.
Find the definition for associated companies in the glossary
Find more information about associated companies
Find Corporation Tax rates including Marginal Small Companies' Relief rates and limits
How Marginal Small Companies' Relief is calculated
If your company or organisation qualifies for Marginal Small Companies' 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 Small Companies' Relief
Accounting periods that span two financial years
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 Small Companies' Relief in the same way, and use the appropriate Corporation Tax main rate percentage and Marginal Small Companies' Relief fraction for each financial year, if they have changed.
Ring fence activities
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 Small Companies' Relief 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 Small Companies' Relief rates and limits
Calculating Marginal Small Companies' Relief step by step
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.
First, check that the profits are above the lower limit for Marginal Small Companies' Relief (currently £300,000) but equal to or below the upper limit (currently £1,500,000).
Put an X in Box 42 on your Company Tax Return to indicate that you're claiming Marginal Small Companies' Relief.
Step 1
Prepare the following figures:
- I - taxable profits (the figure from Box 37 of your Company Tax Return)
- P - taxable profits (Box 37), plus any Franked Investment Income (Box 38)
Step 2
Calculate the Corporation Tax due at the main rate on the taxable profits. This goes into Box 63 on your Company Tax Return.
Step 3
Calculate the profits X on which relief is allowable using the following formula:
X = (M − P) × I ÷ P
Where M is the upper limit (in this case £1.5 million)
Step 4
Calculate the amount of relief allowable on the profits X, by multiplying X by the Marginal Small Companies' Relief fraction (see the link below). Put the amount of relief in Box 64.
Find Corporation Tax rates including Marginal Small Companies' Relief limits and fractions
Find more about calculating Marginal Small Companies' Relief
Step 5
Reduce the figure for Corporation Tax due by subtracting the relief allowable from it. Put this figure in both Box 65 and Box 70.
Step 6
Write down and document your calculation because you'll need to send it in with your Company Tax Return to claim Marginal Small Companies' Relief. See the section in this guide on how to claim Marginal Small Companies' Relief.
Associated companies
Where there are associated companies, please follow the same steps (above) but at Step 3 remember to reduce the upper limit (M) by dividing it by the number of associated companies.
Calculating Marginal Small Companies' Relief - examples
Example 1
Calculating Marginal Small Companies' Relief for a company with:
- taxable profits of £1,000,000
- no Franked Investment Income
- an accounting period 1 April 2008 to 31 March 2009
| Calculation step | Result |
|---|---|
| Step 1: work out taxable profits | £1,000,000 |
| Step 2: calculate Corporation Tax due at the main rate of 28% | £280,000 |
| Step 3: subtract taxable profits from upper limit for Marginal Small Companies' Relief (there are no associated companies) | £1,500,000 − £1,000,000 = £500,000 |
| Step 4: multiply by the MSCR fraction 7/400 to calculate the relief you can claim | £500,000 × 7 ÷ 400 = £8,750 |
| Step 5: deduct the relief from the Corporation Tax due | £280,000 − £8,750 = £271,250 |
Example 2
For this example, because the company's accounting period straddles two financial years, you need to apportion both the company's profits and the upper limit for Marginal Small Companies' Relief between those two years to calculate the correct amount of relief.
There are 366 days in the company's accounting period (2008 is a leap year), of which 91 occur in the 2007 financial year. 91 days of the accounting period fell in the 2007 financial year so you use the fraction 91⁄366 for your calculations for that year, and 275⁄366 for the 2008 financial year.
You need to do two calculations, one for the financial year 2007 and one for the financial year 2008.
Calculating Marginal Small Companies' Relief for a company with:
- taxable profits of £1,000,000
- no Franked Investment Income
- an accounting period 1 January 2008 to 31 December 2008
| 2007 calculation step | Result |
|---|---|
| Step 1: work out taxable profits for financial year 2007 | £1,000,000 × 91 ÷ 366 = £248,633 |
| Step 2: calculate Corporation Tax due at the main rate of 30% | £248,633 × 30% = £74,589 |
| Step 3: subtract taxable profits from upper limit for Marginal Small Companies' Relief | £1,500,000 × 91 ÷ 366 − £248,633 = £124,317 |
| Step 4: multiply by the Marginal Small Companies' Relief fraction 1⁄40 to calculate the relief you can claim | £124,317 × 1 ÷ 40 = £3,107 |
| Step 5: deduct the relief from the Corporation Tax due |
£74,589 − £3,107 = £71,482 |
| 2008 calculation step | Result |
|---|---|
| Step 1: work out taxable profits for financial year 2007 | £1,000,000 × 275 ÷ 366 = £751,366 |
| Step 2: calculate Corporation Tax due at the main rate of 28% | £751,366 × .28 = £210,382 |
| Step 3: subtract taxable profits from upper limit for Marginal Small Companies' Relief | £1,500,000 × 275 ÷ 366 − £751,366 = £375,683 |
| Step 4: multiply by the Marginal Small Companies' Relief fraction 7⁄400 to calculate the relief you can claim | £375,683 × 7 ÷ 400 = £6,574 |
| Step 5: deduct the relief from the Corporation Tax due | £210,382 − £6,574 = £203,808 |
The total Corporation Tax due for the accounting period is simply the results of your two calculations added together:
£71,482 + £203,808 = £275,290
How to claim Marginal Small Companies' Relief (MSCR)
To claim Marginal Small Companies' 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 on your Company Tax Return, as described in that section.
You will also need to send in your calculations along with your return, to show how you arrived at the figures, and keep them with your records.
Completing and filing your Company Tax Return
Marginal Starting Rate Relief (MSRR)
Marginal Starting Rate Relief was available for accounting periods starting on after 31 March 2000 and ending before 1 April 2006 for companies with taxable profits at an annual rate of between £10,001 and £50,000. It provided relief by in effect introducing a rate of Corporation Tax that was even less than the lower ('small companies') rate.
For companies whose accounting period straddled either the beginning or end dates of the relief, Marginal Starting Rate Relief was calculated on a proportional basis.
Companies that were close investment-holding companies at the end of the accounting period could not claim Marginal Starting Rate Relief.
Find more about Marginal Starting Rate Relief
Find out how to check historical calculations for Marginal Starting Rate Relief
