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Taxation (UK) · The comprehensive computation of corporation tax liability

Corporation Tax Rates and Marginal Relief for TX-UK

Updated 11 October 2026 · Fact-checked

Companies pay corporation tax at 19% if augmented profits are £50,000 or less, and 25% if they are £250,000 or more. Between those limits you pay 25% and then deduct marginal relief: (£250,000 – augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Limits are reduced for short periods and associated companies.

Understand Corporation Tax Rates and Marginal Relief

Corporation tax is charged on a company's taxable total profits for each accounting period. The rate depends on the level of the company's profits. The tax rates and allowances ACCA gives you in the exam show a small profits rate of 19% and a main rate of 25%, for the financial years 2023, 2024 and 2025.

The rate is not chosen by the taxable total profits alone. You compare augmented profits with the lower limit of £50,000 and the upper limit of £250,000. Augmented profits are taxable total profits plus exempt distributions received from non-group companies, which is usually the dividend income. Taxable total profits already exclude those dividends.

There are three cases. If augmented profits are at or below the lower limit, the small profits rate applies to taxable total profits. If they are at or above the upper limit, the main rate applies. If they fall in between, you calculate tax at the main rate and then deduct marginal relief. This gives a smooth rise in the effective rate instead of a sudden jump.

The limits are not fixed in every case. If the accounting period is shorter than 12 months, you multiply both limits by the number of months ÷ 12. If the company has associated companies, you divide both limits by the number of associated companies plus one. Do both adjustments if both apply. The marginal relief fraction of 3/200 stays the same.

This is a calculation topic, so it is tested in both objective questions and the longer written questions. Lay out each step so that you earn marks even if one number is wrong.

Key rules to remember

Small profits rate
Tax = taxable total profits × 19%
Applies when augmented profits are £50,000 or less (after adjusting the limit for short periods and associated companies).
Main rate
Tax = taxable total profits × 25%
Applies when augmented profits are £250,000 or more (after adjusting the limit).
Marginal relief
MR = (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits
Deduct from tax at 25%. Applies when augmented profits are between the lower and upper limits.
Augmented profits
Augmented profits = taxable total profits + exempt distributions from non-group companies
Dividends from group companies are excluded. Use augmented profits to test the limits.
Short period adjustment
Adjusted limit = limit × months in period ÷ 12
Applies to both the £50,000 and £250,000 limits.
Associated companies adjustment
Adjusted limit = limit ÷ (number of associated companies + 1)
Applies to both limits. The company itself is counted in the divisor.

How to solve Corporation Tax Rates and Marginal Relief questions

Follow the same order every time. Do the limits first, because everything else depends on them.

  1. 1Find the length of the accounting period in months and the number of associated companies.
  2. 2Adjust both limits: multiply by months ÷ 12 for a short period, and divide by the number of associated companies plus one. Write the new limits down.
  3. 3Calculate taxable total profits, then add any non-group dividends received to get augmented profits.
  4. 4Compare augmented profits with the adjusted limits to decide which case applies.
  5. 5If at or below the lower limit, tax taxable total profits at 19%. If at or above the upper limit, tax at 25%.
  6. 6If in between, calculate tax at 25% on taxable total profits, then calculate marginal relief using the formula and deduct it.
  7. 7State the corporation tax liability and round to the nearest £ as ACCA instructs.

Quickest way: Limits first, then three-way test

When to use it: Use this in objective test questions where time is short and you only need the final tax figure.

  1. Write the adjusted limits straight away, for example £250,000 ÷ 2 = £125,000 and £50,000 ÷ 2 = £25,000.
  2. Compute augmented profits and place them on a mental number line against the limits.
  3. If it falls outside the band, finish with a single multiplication at 19% or 25%.
  4. If inside the band, do 25% tax minus marginal relief. Check that the answer is between the two flat-rate results as a reasonableness test.

Common mistakes in Corporation Tax Rates and Marginal Relief

  • Using taxable total profits instead of augmented profits to test the limits.

    Students forget that dividends received are outside taxable total profits.

    Fix: Always write augmented profits as a separate line, even when there are no dividends.

  • Not adjusting the limits for associated companies, or dividing by the number of associates rather than the number plus one.

    The company itself is overlooked in the count.

    Fix: Divide by (associates + 1). With two associated companies, divide by 3.

  • Forgetting to time-apportion the limits for a short accounting period.

    Students focus on the profits and not on the period length.

    Fix: Check the dates in the question first. Multiply both limits by months ÷ 12.

  • Using augmented profits as the multiplier in the marginal relief formula's numerator.

    The two profit figures are easily confused.

    Fix: The fraction is taxable total profits ÷ augmented profits. Taxable total profits are on top.

  • Applying marginal relief when augmented profits equal or exceed the upper limit.

    Students apply the formula automatically.

    Fix: Test the limits first. At the upper limit, relief is nil and the main rate applies.

Worked examples

Example 1

Bale Ltd has no associated companies. For the year ended 31 March 2026 it has taxable total profits of £180,000 and received no dividends. Calculate its corporation tax liability.

Show the solution
  1. Period is 12 months and there are no associated companies, so the limits stay at £50,000 and £250,000.
  2. Augmented profits = £180,000 (no dividends).
  3. £180,000 is between the limits, so marginal relief applies.
  4. Tax at 25% = £180,000 × 25% = £45,000.
  5. Marginal relief = (£250,000 – £180,000) × 3/200 × £180,000 ÷ £180,000 = £70,000 × 3/200 = £1,050.
  6. Liability = £45,000 – £1,050 = £43,950.

Answer: Corporation tax liability is £43,950.

Example 2

Cole Ltd prepares accounts for the 6 months ended 30 September 2026. It has one associated company. Taxable total profits are £60,000 and it received non-group dividends of £10,000. Calculate its corporation tax liability.

Show the solution
  1. Associated companies: 1 + 1 = 2, so divide the limits by 2. Short period: 6 ÷ 12.
  2. Upper limit = £250,000 × 6/12 ÷ 2 = £62,500.
  3. Lower limit = £50,000 × 6/12 ÷ 2 = £12,500.
  4. Augmented profits = £60,000 + £10,000 = £70,000.
  5. £70,000 is above the upper limit of £62,500, so the main rate applies and there is no marginal relief.
  6. Tax = £60,000 × 25% = £15,000.

Answer: Corporation tax liability is £15,000.

Exam tips

  • Highlight the accounting period dates and any mention of associated companies before you calculate anything.
  • Show the adjusted limits as a separate working. Marks are often given for them even if the final tax is wrong.
  • Look for dividends received in the question. They are the signal that augmented profits differ from taxable total profits.
  • In objective questions, check which figure is asked for: tax before relief, the relief itself, or the final liability.
  • Use the rates and the marginal relief formula from the tax rates and allowances provided in the exam, but know where each number goes.

Practice questions from The comprehensive computation of corporation tax liability

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.

Corporation Tax Rates and Marginal Relief: frequently asked questions

What are the corporation tax rates in 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. These are shown for the financial years 2023, 2024 and 2025 in the tax rates and allowances ACCA provides.

How do associated companies affect marginal relief?

They reduce both limits. Divide the lower and upper limits by the number of associated companies plus one. This can move a company into the marginal relief band or the main rate even with modest profits.

What are augmented profits?

Augmented profits are taxable total profits plus exempt distributions received from companies that are not in the same group, usually dividends. You use them to test the limits and in the marginal relief fraction.

Is the marginal relief formula given in the exam?

The formula is included with the tax rates and allowances. You still need to know which profit figure goes where and how to adjust the limits.