Advanced Taxation (UK) · Corporation tax: the scope of corporation tax, including close companies and investment companies

Corporation Tax Rates, Marginal Relief and Instalments

Updated 11 October 2026

UK companies pay 19% on profits up to £50,000 and 25% above £250,000. Between those limits you pay the main rate, then deduct marginal relief. Limits are divided by associated companies and time-apportioned for short periods. Large companies pay quarterly instalments, starting in month 7 of the period and continuing after the period end.

Understand Corporation Tax Rates, Marginal Relief and Instalments

Corporation tax is charged on taxable total profits of a company for each accounting period. The rate depends on the size of profits. For financial year 2025 the rates are a small profits rate of 19% and a main rate of 25%.

The small profits rate applies if profits are at or below the lower limit of £50,000. The main rate applies if profits are at or above the upper limit of £250,000. Between the two, the company pays the main rate and then gets marginal relief, which gives a smooth rise in the effective rate. Effectively, the rate on the slice between the limits is 26.5%.

The limits use augmented profits, not taxable total profits. Augmented profits are taxable total profits plus exempt distributions received from non-group companies. Exempt distributions received from 51% group companies are excluded from augmented profits. The limits are divided by 1 plus the number of associated companies, and they are scaled down for an accounting period shorter than 12 months.

Large companies must also pay by quarterly instalments, rather than nine months and one day after the period end. A company is large if its profits for the instalment test exceed £1,500,000, the figure given in the tax tables. Those profits are taxable total profits plus exempt distributions received, other than distributions from 51% group companies. That threshold is divided by 1 plus the number of associated companies and time-apportioned for a short period. For a 12-month period the instalments fall in months 7, 10, 13 and 16 from the start of the period, so the last two are paid after the period end.

Very large companies are a separate category. They have a much higher profit threshold and pay earlier, so do not use the £1,500,000 figure for them. As an ATX candidate you must apply the thresholds correctly, adjust them where needed, and give clear advice on cash flow.

Key rules to remember

Rates (financial year 2025): Small profits rate 19%; main rate 25%; Given in the tax tables. Small profits rate applies at or below £50,000; main rate at or above £250,000.
Marginal relief: (Upper limit – Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits; Deduct from tax at the main rate. If there are no exempt distributions, taxable total profits ÷ augmented profits = 1.
Augmented profits: Taxable total profits + exempt distributions received (excluding those from 51% group companies); Used to test against the limits and in the marginal relief formula.
Adjusting the limits: Limit ÷ (1 + number of associated companies) × months in period ÷ 12; Apply to both the lower and upper limits. The standard fraction 3/200 does not change.
Quarterly instalment threshold (large companies): Profits for the instalment test above £1,500,000, where profits = taxable total profits + exempt distributions received (excluding those from 51% group companies). Threshold is divided by 1 + associates and time-apportioned.; Use the figure in the tax tables. Large companies pay in months 7, 10, 13 and 16 of a 12-month period. Very large companies are a separate category with a higher threshold and earlier due dates.

How to solve Corporation Tax Rates, Marginal Relief and Instalments questions

Use this order for any rates or marginal relief question.

1Work out taxable total profits for the accounting period, and the length of the period in months.
2Add any exempt distributions received from non-group companies to get augmented profits.
3Count associated companies, then divide both limits by (1 + number of associates) and multiply by months ÷ 12 for a short period.
4Compare augmented profits with the adjusted limits to decide whether the small rate, the main rate or marginal relief applies.
5If in the marginal band, compute tax at 25% on taxable total profits, then deduct marginal relief using the formula.
6Compare profits for the instalment test (taxable total profits plus exempt distributions, other than those from 51% group companies) with the adjusted £1,500,000 threshold, then state the due dates if instalments apply.
7Present the answer with clear workings and a brief comment applying it to the scenario.

Quickest way: Adjust limits first, then use the 26.5% slice

When to use it: Use it when there are no exempt distributions and a single full 12-month period, and the profits fall in the marginal band.

Adjust both limits for associates and period length.
If profits are within the band, tax at 19% on the lower limit plus 26.5% on profits above the lower limit.
Check the result by computing 25% less marginal relief in full if you have time.
Remember this shortcut fails if exempt distributions exist, because taxable total profits then differ from augmented profits.

Common mistakes in Corporation Tax Rates, Marginal Relief and Instalments

Ignoring associated companies.
Students focus on the company in the question and overlook the other group or controlled companies.
Fix: Count associated companies before touching the limits, and divide both limits by (1 + number of associates).
Forgetting to time-apportion limits for a short accounting period.
The profit figures look familiar, so students apply £50,000 and £250,000 automatically.
Fix: Always write the length of the period and multiply both limits by months ÷ 12.
Using taxable total profits instead of augmented profits to test the limits.
The two are often equal, so students stop checking.
Fix: Check for dividends received from non-group companies and add them to get augmented profits.
Applying the marginal relief fraction to the wrong profit figure.
Students mix up the three figures in the formula.
Fix: Use upper limit minus augmented profits, times 3/200, times taxable total profits over augmented profits.
Treating all companies as paying by instalments or none.
The nine months and one day rule is memorised, but the threshold is not applied.
Fix: Compare profits for the instalment test (taxable total profits plus exempt distributions, other than those from 51% group companies) with the adjusted £1,500,000 threshold and say clearly which payment rule applies.

Worked examples

Example 1

Bryn Ltd has a 12-month accounting period to 31 March 2026 with taxable total profits of £180,000. It has no associated companies and receives no dividends. Calculate its corporation tax liability.

Show the solution

Augmented profits equal taxable total profits, £180,000, because there are no exempt distributions.
The limits are £50,000 and £250,000, so £180,000 is in the marginal band.
Tax at the main rate: £180,000 × 25% = £45,000.
Marginal relief: (£250,000 – £180,000) × 3/200 × (£180,000 ÷ £180,000) = £70,000 × 3/200 = £1,050.
Tax payable = £45,000 – £1,050 = £43,950.
Check: £50,000 × 19% = £9,500, plus £130,000 × 26.5% = £34,450, giving £43,950.

Answer: Corporation tax is £43,950.

Example 2

Cedar Ltd has one associated company. For the 12 months to 31 March 2026 it has taxable total profits of £110,000 and receives a £10,000 dividend from an unrelated UK company. Calculate corporation tax.

Show the solution

Augmented profits = £110,000 + £10,000 = £120,000.
With one associated company, divide the limits by 2: lower £25,000 and upper £125,000.
Augmented profits of £120,000 are between £25,000 and £125,000, so marginal relief applies.
Tax at 25% on £110,000 = £27,500.
Marginal relief = (£125,000 – £120,000) × 3/200 × (£110,000 ÷ £120,000) = £5,000 × 0.015 × 0.916667 = £68.75.
Tax payable = £27,500 – £68.75 = £27,431.25.

Answer: Corporation tax is £27,431.25.

Exam tips

Write the adjusted limits clearly at the top of the answer. Markers give credit for the correct limits even if later arithmetic slips.
Always check the scenario for other group companies, dividends from non-group companies and short periods. These are the usual traps.
Show the marginal relief formula with numbers substituted. Method marks are available.
Use the tax tables supplied, never rates from memory, and quote the £1,500,000 instalment threshold from them.
Link your calculation to advice, for example the cash flow effect of instalments or the effect of an additional associated company.

Practice questions from Corporation tax: the scope of corporation tax, including close companies and investment companies

Corporation Tax Rates, Marginal Relief and Instalments: frequently asked questions

What is the difference between the small profits rate and the main rate?

The small profits rate is 19% and applies where augmented profits are at or below the lower limit of £50,000. The main rate is 25% and applies at or above the upper limit of £250,000. Between the limits, you pay the main rate less marginal relief.

How do associated companies affect marginal relief?

The lower and upper limits are divided by 1 plus the number of associated companies. A lower limit means a company reaches the main rate sooner. The standard fraction of 3/200 stays the same.

What are augmented profits?

They are taxable total profits plus exempt distributions received from non-group companies. Exempt distributions from 51% group companies are excluded. Augmented profits are used to decide which rate applies and in the marginal relief formula.

Who pays corporation tax by quarterly instalments?

A company is large, and must pay in instalments, if its profits for the instalment test exceed £1,500,000, the figure in the tax tables. Those profits are taxable total profits plus exempt distributions received, other than from 51% group companies. The threshold is divided by 1 plus the number of associated companies and time-apportioned for short periods.