Taxation (UK) · Taxable total profits

Corporation Tax Rates and Marginal Relief in TX-UK

Updated 11 October 2026 · Fact-checked

Corporation tax is charged on taxable total profits at 19% if augmented profits are at or below the lower limit, and 25% if they are at or above the upper limit. Between the limits, you charge 25% and deduct marginal relief. Limits are divided by 1 plus the number of associated companies, and scaled for short periods.

Understand Corporation Tax Rates and Marginal Relief

A company pays corporation tax on its taxable total profits (TTP) for each accounting period. The rate you use does not depend on TTP alone. It depends on augmented profits.

Augmented profits are TTP plus exempt dividends received from non-group companies. Dividends from companies in the same group are left out. Dividends are not in TTP, but they show how big the company really is, so they count when you test against the limits.

There are two rates. The small profits rate is 19% and the main rate is 25%. The lower limit is £50,000 and the upper limit is £250,000 (for a 12-month period with no associated companies). If augmented profits are at or below the lower limit, all TTP is taxed at 19%. If they are at or above the upper limit, all TTP is taxed at 25%.

Between the limits, the company pays 25% on TTP, then gets marginal relief. This smooths the step from 19% to 25%. The standard fraction is 3/200.

The limits are cut if the company has associated companies, and cut in proportion if the accounting period is shorter than 12 months. Divide by the number of companies (the company itself plus associated companies). Then time-apportion. Always adjust the limits first, then compare augmented profits with them.

Key rules to remember

Rates: Small profits rate 19%; main rate 25%; Given in the tax tables for financial years 2023, 2024 and 2025.
Augmented profits: Augmented profits = TTP + exempt dividends from non-group companies; Group dividends are excluded. Use augmented profits only to test the limits and compute marginal relief.
Limits (12 months, no associates): Lower limit £50,000; upper limit £250,000; Both are given in the exam tables.
Adjusting limits: Adjusted limit = limit × (months in period ÷ 12) ÷ (1 + number of associated companies); Apply to both limits. Count associated companies, not the company itself, then add 1 in the divisor.
Marginal relief: (Upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits; Use the adjusted upper limit. Deduct the relief from tax at 25% on TTP.
Liability between the limits: Tax = 25% × TTP – marginal relief; Applies only when augmented profits are above the lower limit and below the upper limit.

How to solve Corporation Tax Rates and Marginal Relief questions

Follow the same order every time and you will not miss the limit adjustments.

1Compute TTP for the accounting period.
2Compute augmented profits: add exempt dividends from non-group companies to TTP. Ignore group dividends.
3Adjust the limits: divide by (1 + associated companies) and multiply by months ÷ 12 for a short period.
4Compare augmented profits with the adjusted limits.
5If at or below the lower limit, tax TTP at 19%. If at or above the upper limit, tax TTP at 25%.
6If between the limits, compute 25% × TTP, then deduct marginal relief using the adjusted upper limit.
7State the final liability clearly, and show every working in Section C.

Quickest way: Limits first, then relief

When to use it: Use this in objective test questions and as a check in Section C.

Write the adjusted lower and upper limits at the top before anything else.
Find augmented profits and place them on the number line: below, between or above.
Below or above: multiply TTP by 19% or 25% and stop.
Between: work out the relief as (upper – augmented) × 3/200 × TTP ÷ augmented. If there are no dividends, TTP ÷ augmented is 1, so it is just (upper – TTP) × 3/200.
Subtract relief from 25% × TTP. Sense check: the answer should sit between 19% and 25% of TTP.

Common mistakes in Corporation Tax Rates and Marginal Relief

Using TTP instead of augmented profits to test the limits
TTP is the figure you have just computed, so it feels like the natural one.
Fix: Always add non-group exempt dividends first, then compare. Use TTP only as the amount being taxed.
Including dividends from group companies in augmented profits
Students add every dividend received.
Fix: Add only dividends from non-group companies. Group dividends are excluded.
Forgetting to divide the limits by associated companies
The question mentions another company in passing and it is missed.
Fix: Scan the scenario for companies under common control. Divide by 1 plus the number of associates.
Not reducing the limits for a short accounting period
Students focus on the profit figures.
Fix: Multiply both limits by months ÷ 12 before comparing.
Using TTP instead of the adjusted upper limit or swapping the fraction
The formula is memorised loosely.
Fix: Write the formula out each time: (upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits.
Applying marginal relief when profits are outside the band
Students apply the formula automatically.
Fix: Check first. Relief applies only strictly between the adjusted limits.

Worked examples

Example 1

Brook Ltd has no associated companies. For the year to 31 March 2026 its TTP is £180,000 and it received exempt dividends of £20,000 from an unconnected company. Compute the corporation tax liability.

Show the solution

Augmented profits = £180,000 + £20,000 = £200,000.
Limits are £50,000 and £250,000 (12 months, no associates).
£200,000 is between the limits, so marginal relief applies.
Tax at 25% on TTP = £180,000 × 25% = £45,000.
Marginal relief = (£250,000 – £200,000) × 3/200 × £180,000 ÷ £200,000 = £50,000 × 0.015 × 0.9 = £675.
Liability = £45,000 – £675 = £44,325.

Answer: Corporation tax liability is £44,325.

Example 2

Tern Ltd has two associated companies. For the six months to 30 September 2025 its TTP is £60,000, with no dividends received. Compute the corporation tax liability.

Show the solution

Number of companies = 3 (Tern plus two associates).
Lower limit = £50,000 × 6/12 ÷ 3 = £8,333.
Upper limit = £250,000 × 6/12 ÷ 3 = £41,667.
Augmented profits are £60,000, above the adjusted upper limit.
The main rate applies to all TTP: £60,000 × 25% = £15,000.

Answer: Corporation tax liability is £15,000, with no marginal relief.

Exam tips

Write the adjusted limits first. Markers give marks for correct limits even if later figures slip.
Read the scenario for associated companies and dividends. Both are often hidden in one sentence.
In objective tests, check if augmented profits fall outside the band. That saves you doing the relief calculation.
In Section C, show the marginal relief formula with figures, so method marks are available.
Round to the nearest £ as the exam instructions allow.

Practice questions from Taxable total profits

Corporation Tax Rates and Marginal Relief in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalCorporation Tax Rates and Marginal Relief

Corporation Tax Rates and Marginal Relief: frequently asked questions

What are the corporation tax rates for TX-UK?

The small profits rate is 19% and the main rate is 25%. The lower limit is £50,000 and the upper limit is £250,000, as given in the tax tables. Marginal relief applies between the limits.

What is the marginal relief formula?

Marginal relief = (upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits. It is given in the exam tables, but you must apply it correctly. Deduct it from tax at 25% on TTP.

What are augmented profits?

They are TTP plus exempt dividends received from non-group companies. They are used to decide which rate applies and to compute marginal relief.

How do associated companies affect the limits?

You divide both limits by 1 plus the number of associated companies. If the period is also shorter than 12 months, you scale the limits by months ÷ 12 as well.