Advanced Taxation (UK) · Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Corporation Tax Rates, Marginal Relief and Instalments in ATX-UK

Updated 11 October 2026 · Fact-checked

Companies pay 19% on profits up to £50,000, 25% on profits over £250,000, and in between the main rate applies less marginal relief. Limits are divided by associated companies plus one. Large companies with profits over £1,500,000 (also divided) pay by quarterly instalments. Work out augmented profits first.

Understand Corporation Tax Rates, Marginal Relief and Instalments

UK corporation tax has two rates. The small profits rate is 19%. The main rate is 25%. Which one applies depends on the company's augmented profits, not just its taxable total profits.

Augmented profits are taxable total profits plus exempt distributions received from non-group companies (for example, dividends from non-group companies). Dividends from 51% group companies are excluded. The lower limit is £50,000 and the upper limit is £250,000. If augmented profits are £50,000 or less, the small profits rate applies to all taxable total profits. If they are £250,000 or more, the main rate applies to all taxable total profits.

Between the limits, you charge tax at the main rate and then deduct marginal relief. This gives an effective marginal rate on the slice between the limits that is higher than 25%. The standard fraction is 3/200.

The limits are reduced for associated companies and for short accounting periods. You divide the limits by the number of companies plus one, where the number counts the company itself and its associates. Time-apportion them for periods under 12 months. Only companies that are active count in some cases, so read the scenario: dormant companies are generally ignored, which is a point you should check against the facts given.

A large company has augmented profits above £1,500,000, also divided by associated companies. Large companies pay by quarterly instalments, in the months before the end of the accounting period and after it. A very large company, with profits over £20,000,000 (again divided by associates), pays earlier. The £1,500,000 threshold is in the tax tables. The £20,000,000 figure and the exact due dates are not, so learn them.

Key rules to remember

Small profits rate: 19% on taxable total profits where augmented profits ≤ lower limit (£50,000); Limits are divided by (associated companies + 1) and time-apportioned for short periods.
Main rate: 25% on taxable total profits where augmented profits ≥ upper limit (£250,000); Compare augmented profits, not taxable total profits, with the limits.
Augmented profits: Taxable total profits + exempt distributions received from non-group companies; Distributions from 51% group companies are left out.
Marginal relief: (Upper limit – Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits; Applies only when augmented profits fall between the limits. Deduct it from tax at 25%.
Adjusted limits: Limit ÷ (number of associated companies + 1) × months in period ÷ 12; Applies to lower limit, upper limit and the £1,500,000 instalment threshold.
Quarterly instalment threshold: Augmented profits > £1,500,000 (adjusted) means the company is large; Given in the tax tables. Generally not large in its first year.

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

Use the same sequence each time, and show every working because marks go for method.

1Compute taxable total profits for the accounting period, and note its length in months.
2Add any exempt distributions from non-group companies to find augmented profits.
3Count associated companies and the company itself. Divide both limits by that number, and time-apportion if the period is under 12 months.
4Compare augmented profits with the adjusted limits to decide: small profits rate, main rate, or marginal relief.
5If in the marginal band, compute tax at 25% on taxable total profits, then deduct marginal relief using the formula.
6Test whether augmented profits exceed the adjusted £1,500,000 threshold to decide if instalments are required, and state the due dates if asked.
7State your conclusion clearly, with any planning advice the requirement asks for.

Quickest way: Marginal relief in four lines

When to use it: When augmented profits sit between the adjusted limits and you only need the tax figure.

Tax = 25% × taxable total profits.
Relief = (adjusted upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
Net tax = tax – relief.
If there are no exempt distributions, taxable total profits ÷ augmented profits equals 1, so relief is just (upper limit – profits) × 3/200.

Common mistakes in Corporation Tax Rates, Marginal Relief and Instalments

Using taxable total profits instead of augmented profits when comparing with the limits.
Students forget to add dividends received from non-group companies.
Fix: Always write an augmented profits line first, even if the answer is the same as taxable total profits.
Not dividing the limits by the number of associated companies plus one.
The scenario mentions related companies only in passing, so they are overlooked.
Fix: Scan the scenario for companies under common control and count them before looking at the limits.
Forgetting to time-apportion limits for a short accounting period.
Students focus on the profits and ignore the period length.
Fix: Multiply the limits by months ÷ 12 and say so in the working.
Leaving out the ratio taxable total profits ÷ augmented profits in the relief formula.
Students memorise a simplified formula that works only without distributions.
Fix: Write the full formula every time, then simplify only if the ratio is 1.
Deducting marginal relief from profits instead of from tax.
Confusion between a deduction from profits and a reduction in the tax charge.
Fix: Compute tax at 25% first, then subtract the relief to reach the final liability.
Applying the instalment threshold without adjustment, or treating any company over it as paying early.
The £1,500,000 figure is memorised but the adjustments and the very large band are not.
Fix: Adjust the threshold for associates and period length, and separately check the very large company test.

Worked examples

Example 1

Ridge Ltd has no associated companies. For the 12 months to 31 March 2026 its taxable total profits are £180,000, including no exempt distributions. Calculate its corporation tax liability.

Show the solution

Augmented profits = £180,000, as there are no distributions.
Limits are £50,000 and £250,000 (no associates, 12 months). Profits are between the limits, so marginal relief applies.
Tax at 25% = £180,000 × 25% = £45,000.
Marginal relief = (£250,000 – £180,000) × 3/200 × (£180,000 ÷ £180,000) = £70,000 × 0.015 = £1,050.
Corporation tax = £45,000 – £1,050 = £43,950.

Answer: Corporation tax payable is £43,950.

Example 2

Delta Ltd has two associated companies. For the 12 months to 31 March 2026 it has taxable total profits of £70,000 and receives dividends of £10,000 from a non-group UK company, which are included in augmented profits but not in taxable total profits. Calculate corporation tax and state whether quarterly instalments are required.

Show the solution

Companies = Delta plus two associates = 3. Adjusted lower limit = £50,000 ÷ 3 = £16,667. Adjusted upper limit = £250,000 ÷ 3 = £83,333.
Augmented profits = £70,000 + £10,000 = £80,000. This is between £16,667 and £83,333, so marginal relief applies.
Tax at 25% on taxable total profits = £70,000 × 25% = £17,500.
Marginal relief = (£83,333 – £80,000) × 3/200 × (£70,000 ÷ £80,000) = £3,333 × 0.015 × 0.875 = £43.75, which is £44 to the nearest £.
Corporation tax = £17,500 – £44 = £17,456.
Instalment threshold = £1,500,000 ÷ 3 = £500,000. Augmented profits of £80,000 are below this, so Delta is not large and pays nine months and one day after the period end.

Answer: Corporation tax is £17,456. Delta is not a large company, so quarterly instalments are not required.

Exam tips

Write augmented profits and the adjusted limits as the first lines of every answer. Markers award these marks even if later arithmetic slips.
The tax tables give the formula, the limits and the £1,500,000 threshold, so do not waste time memorising them. Learn how to apply them.
Look for hidden associated companies in the scenario, such as companies controlled by the same shareholder. They change every limit.
In planning questions, point out the high effective marginal rate in the marginal band and suggest timing profits or dividends to manage it.
Show every working. The supplementary instructions say workings need only be to the nearest £.

Practice questions from Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Corporation Tax Rates, Marginal Relief and Instalments in other exams

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

ACCA Applied SkillsCorporation Tax Rates and Marginal Relief

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 £250,000. Between the two, the main rate applies less marginal relief.

How do associated companies affect marginal relief?

You divide the lower and upper limits by the number of associated companies plus one. A company with three associates therefore uses limits divided by four. The more associates, the sooner profits reach the main rate.

Do quarterly instalments apply to every company?

No. They apply to large companies, whose augmented profits exceed £1,500,000 after adjusting for associates and period length. Smaller companies pay in one amount, normally nine months and one day after the period end.

Do I need to memorise the marginal relief formula?

The formula is in the tax tables provided in the exam. You still need to know how to apply it, including the ratio of taxable total profits to augmented profits and the adjusted upper limit.