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Taxation (UK) · The scope of corporation tax

Corporation Tax Rates and Marginal Relief for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

Companies pay 19% on profits up to £50,000 and 25% above £250,000. Between those limits, you charge 25% and then deduct marginal relief: (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Divide the limits by associated companies plus one, and time-apportion them for short periods.

Understand Corporation Tax Rates and Marginal Relief

Corporation tax is charged on a company's taxable total profits (TTP) for each accounting period. The rate depends on the level of the company's augmented profits. Augmented profits are TTP plus exempt dividends received from non-group companies.

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. These are for a 12-month period with no associated companies. ACCA gives these figures in the tax rates and allowances in the exam.

If augmented profits are £50,000 or less, all TTP is taxed at 19%. If they are £250,000 or more, all TTP is taxed at 25%. Between the limits, the company pays 25% and then gets marginal relief. This creates a gradual rise in the effective rate instead of a cliff edge. The marginal rate on the slice between the limits works out at 26.5%.

The limits are changed in two cases. First, divide both by (1 + number of associated companies). Second, if the accounting period is shorter than 12 months, multiply both by months ÷ 12. Do both if both apply. The standard fraction of 3/200 is never changed.

Companies with profits wholly within the 19% band still use the same method. Always check augmented profits against the adjusted limits first, because that decides the whole route.

Key rules to remember

Rates
Small profits rate 19%; main rate 25%
Financial years 2023, 2024 and 2025. Given in the exam.
Limits (12 months, no associates)
Lower limit £50,000; upper limit £250,000
Compare with augmented profits, not TTP.
Marginal relief
(Upper limit − augmented profits) × 3/200 × TTP ÷ augmented profits
Only when augmented profits are between the adjusted limits. Given in the exam.
Adjusted limits
Limit ÷ (1 + associated companies) × months ÷ 12
Apply to both limits. Do not change the 3/200 fraction.
Augmented profits
TTP + exempt dividends from non-group companies
Dividends from 51% subsidiaries or other group companies are not added.

How to solve Corporation Tax Rates and Marginal Relief questions

Use this order for any question on rates and marginal relief.

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

Quickest way: Adjust limits first, then pick the band

When to use it: Use this in Section B or C when you must find the tax quickly and need to check which band applies.

  1. Write the adjusted limits at the top of your answer.
  2. Write augmented profits next to them. If they are outside the range, you are done with one multiplication.
  3. If inside the range, compute 25% of TTP, then marginal relief in one line.
  4. Sense-check: the answer must lie between 19% and 25% of TTP.

Common mistakes in Corporation Tax Rates and Marginal Relief

  • Comparing TTP rather than augmented profits with the limits.

    Students forget dividends are added when deciding the band.

    Fix: Always compute augmented profits first and use them for the band and in the marginal relief formula.

  • Dividing the limits by the number of associated companies instead of that number plus one.

    The company itself is forgotten.

    Fix: Divide by (1 + associates). With one associate, divide by 2.

  • Adding dividends from group companies to augmented profits.

    Students treat all dividends alike.

    Fix: Add only exempt dividends received from non-group companies.

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

    The rate table shows full-year figures.

    Fix: Multiply both limits by months ÷ 12 before comparing.

  • Applying the marginal relief formula with the unadjusted upper limit.

    Students adjust limits for the band test but use the printed figure in the formula.

    Fix: Use the adjusted upper limit in the formula too. Leave 3/200 unchanged.

Worked examples

Example 1

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

Show the solution
  1. Augmented profits = £180,000 (no dividends).
  2. Limits are £50,000 and £250,000 for 12 months with no associates.
  3. Augmented profits lie between the limits, so marginal relief applies.
  4. Tax at main rate: £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: £43,950

Example 2

Cedar Ltd has one associated company and prepares a six-month accounting period to 30 September 2025. TTP is £60,000. It received exempt dividends of £20,000 from a non-group company. Calculate its corporation tax liability.

Show the solution
  1. Augmented profits = £60,000 + £20,000 = £80,000.
  2. Associated companies: divide by 2. Six months: multiply by 6 ÷ 12.
  3. Lower limit = £50,000 ÷ 2 × 6/12 = £12,500.
  4. Upper limit = £250,000 ÷ 2 × 6/12 = £62,500.
  5. Augmented profits of £80,000 exceed £62,500, so the main rate applies to all TTP.
  6. Liability = £60,000 × 25% = £15,000.

Answer: £15,000

Exam tips

  • Write out the adjusted limits before any tax calculation. Method marks depend on it.
  • The marginal relief formula is given in the exam, so concentrate on using it correctly, not memorising it.
  • Read the scenario for associated companies and period length. These are the usual traps.
  • Check dividends carefully: only non-group dividends enter augmented profits.
  • In Section C, show each working separately, because all workings must be shown.

Practice questions from The scope of corporation tax

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 ACCA TX-UK?

The small profits rate is 19% and the main rate is 25% for financial years 2023, 2024 and 2025. The limits are £50,000 and £250,000. These are given in the exam tax rates and allowances.

How do you calculate marginal relief?

Use (upper limit − augmented profits) × 3/200 × TTP ÷ augmented profits. Deduct it from TTP × 25%. It applies only when augmented profits are between the lower and upper limits.

How do associated companies affect the limits?

Divide both limits by one plus the number of associated companies. This reduces the band where lower rates apply. Do not change the 3/200 fraction.

What happens to the limits in a short accounting period?

Multiply both limits by the number of months divided by 12. If there are associated companies as well, apply both adjustments.