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Marginal relief

Marginal relief

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Claiming Marginal Relief

In financial years prior to 2015, there were 2 rates of Corporation Tax. The rate your company paid depended on the level of its taxable profits, plus franked investment income:

  • The lower rate - known as the 'small profits' rate (previously known as the 'small companies' rate') for profits of £300,000 or less;
  • The higher rate - known as the 'full' or 'main' rate for profits exceeding £1,500,000.

If your company or organisation's profits were above £300,000, but less than or equal to £1,500,000, you may be able to claim Marginal Relief.

However, there are limitations on this relief for companies with associated companies and close investment holding companies.

What does Marginal Relief do?

The effect of Marginal Relief is to make the average rate of Corporation Tax increase in line with profits between the 2 thresholds. The average rate of Corporation Tax becomes closer to the main rate as profits approach the threshold of £1,500,000. The significance of Marginal Relief diminished as the main rate was brought down towards the small profits rate. It ceased to apply in financial year 2015 the rates were harmonised at 20%.

How Marginal Relief is calculated

There is an online calculator on the HMRC website that you can use to calculate the Marginal Relief your company is entitled to. If the accounting period of your company spans 2 financial years with different tax rates, you'll have to divide up your profits and do a separate calculation for each financial year.

A different Marginal Relief fraction may apply to UK Continental Shelf oil-related ('ring fence') activities. You wouldn't be able to use the HMRC online calculator if this applies to your company. See Gov.uk website for further details.

There are differences in the calculation of marginal relief if your company receives 'franked investment income'.

An example of calculating Marginal Relief

Calculating Marginal Relief for a company with:

  • taxable profits of £1,000,000
  • no Franked Investment Income
  • no profits from ring fence activities
  • no associated companies
  • an accounting period 1 April 2013 to 31 March 2014
Calculation stepResult

Step 1: work out total taxable profits

£1,000,000

Step 2: calculate Corporation Tax due at the main rate of 23%

£230,000

Step 3: subtract total taxable profits from upper limit for Marginal Relief

£1,500,000 - £1,000,000 = £500,000

Step 4: multiply by the standard fraction 3/400 to calculate the relief you can claim

£500,000 × 3 ÷ 400 = £3,750

Step 5: deduct the relief from the Corporation Tax due

£230,000 - £3,750 = £226,250

To claim Marginal Relief, either use the online calculator or manually carry out the calculations, and put the results of your calculations in the appropriate boxes on your Company Tax Return.

You'll also need to send your calculations to HMRC as part of your Company Tax Return to show how you worked it out. You should also keep a copy with your records.