Advanced Taxation (UK) · Legitimate tax planning measures

Corporation Tax Rates, Marginal Relief and Instalments

Updated 11 October 2026 · Fact-checked

Corporation tax uses a 19% small profits rate up to £50,000, a 25% main rate above £250,000, and marginal relief between. Limits are divided by associated companies plus one. Companies with profits above £1,500,000 pay by quarterly instalments. Plan by controlling profits, associates and payment dates.

Understand Corporate Tax Planning: Rates, Marginal Relief and Instalments

A UK company pays corporation tax on its taxable total profits. The rate depends on its augmented profits. These are taxable total profits plus exempt distributions received from non-group companies.

The tables give a small profits rate of 19%, a main rate of 25%, a lower limit of £50,000 and an upper limit of £250,000. Below the lower limit you pay 19%. Above the upper limit you pay 25%. In between, you pay 25% and then deduct marginal relief. The effective rate on the slice between the limits is 26.5%.

The limits are for a 12-month period. If the accounting period is shorter than 12 months, multiply them by months ÷ 12. If the company has associated companies, divide the limits by the number of companies in the group of associates, including itself. Associates are often companies under common control. A planner therefore asks: can an associate be removed, or can the profit be moved or timed, so that more profit is taxed at 19%?

Cash flow matters too. Most companies pay nine months and one day after the period end. A large company has augmented profits above the £1,500,000 threshold, also divided by associates and time-apportioned. It pays by quarterly instalments, which brings payment forward. Planning is about keeping below the threshold where legitimately possible, and knowing the due dates so you can defer cash outflow.

The exam asks you to quantify the saving and advise. State your assumptions, work to the nearest £, and show every working.

Key rules to remember

Small profits rate: 19% where augmented profits ≤ £50,000 (lower limit); Limits are reduced for short periods and for associated companies.
Main rate: 25% where augmented profits > £250,000 (upper limit); Applies to all taxable total profits.
Marginal relief: (Upper limit − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits; Deduct from tax at 25% on taxable total profits. The standard fraction is 3/200.
Adjusting the limits: Limit × (months ÷ 12) ÷ (number of associated companies + 1); Here the count is of associates other than the company itself. This applies to the lower, upper and instalment limits.
Quarterly instalment threshold: Large company if augmented profits exceed £1,500,000; The threshold is also divided by associates and time-apportioned for short periods.
Effective marginal rate: 25% + (3/200 × 100%) = 25% + 1.5% = 26.5% on profits between the limits, where taxable total profits equal augmented profits; This applies where taxable total profits equal augmented profits. The extra profit is taxed at 25% plus a 1.5% reduction in relief.

How to solve Corporate Tax Planning: Rates, Marginal Relief and Instalments questions

Use this order for any computation or planning question on company tax rates.

1Identify the accounting period and its length in months. Split periods longer than 12 months.
2Count associated companies and note any that are dormant or newly acquired or disposed of. Check the facts.
3Work out augmented profits: taxable total profits plus exempt distributions from non-group companies.
4Adjust the lower and upper limits for months and associates. Do the same for the £1,500,000 threshold.
5Compare augmented profits with the limits. Choose 19%, 25% or marginal relief.
6If relief applies, compute tax at 25% and deduct marginal relief using the table formula.
7For a large company, set out the quarterly instalment dates and amounts. For others, give the nine months and one day date.
8Conclude with advice: the saving, the assumptions and any risks.

Quickest way: Limits first, then relief

When to use it: Use this when you must decide quickly which rate band applies.

Write the adjusted lower and upper limits at the top of your answer.
Check augmented profits against them. If outside, apply 19% or 25% and stop.
If between, compute 25% tax, then marginal relief in one line.
Write your assumptions as you go to pick up marks.

Common mistakes in Corporate Tax Planning: Rates, Marginal Relief and Instalments

Using the unadjusted £50,000 and £250,000 limits for a company with associates.
Students go straight to the table and forget the associate count.
Fix: Check for associates before anything else. Divide the limits by the number of companies, including the company itself.
Using taxable total profits instead of augmented profits to test the limits.
Exempt dividends from outside the group are easy to miss.
Fix: Add them to profits for the limit test. Use taxable total profits only as the numerator in the relief formula.
Not reducing limits for a short accounting period.
Students focus on the rates and skip the period length.
Fix: Multiply the limits by months ÷ 12 before comparing profits.
Treating all companies as paying nine months and one day after the period end.
It is the default rule and is easy to remember.
Fix: Test the instalment threshold, adjusted for associates and period length. Only a large company pays in quarterly instalments.
Applying marginal relief when taxable total profits fall wholly inside one band.
Students apply the formula mechanically.
Fix: Relief applies only when augmented profits lie between the adjusted limits.

Worked examples

Example 1

Alpha Ltd has no associated companies. For the year to 31 March 2026 its taxable total profits are £180,000 and it has no exempt distributions. Calculate its corporation tax liability.

Show the solution

Augmented profits are £180,000, between £50,000 and £250,000, 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 × 3/200 = £1,050.
Corporation tax: £45,000 − £1,050 = £43,950.

Answer: £43,950

Example 2

Beta Ltd has two associated companies, so three in total. Its taxable total profits for the year to 31 March 2026 are £100,000. Calculate its corporation tax liability and state whether it pays by instalments.

Show the solution

Adjusted lower limit: £50,000 ÷ 3 = £16,667. Adjusted upper limit: £250,000 ÷ 3 = £83,333.
Profits of £100,000 exceed £83,333, so the main rate applies and there is no marginal relief.
Tax: £100,000 × 25% = £25,000.
Instalment threshold: £1,500,000 ÷ 3 = £500,000. Profits of £100,000 are below it, so Beta Ltd is not large.
Payment is due nine months and one day after the period end, which is 1 January 2027.

Answer: Corporation tax £25,000, paid by 1 January 2027, not by instalments.

Exam tips

Write the adjusted limits at the top of your answer. Markers award marks for them even if later working slips.
Copy the marginal relief formula from the tax tables rather than relying on memory. The tables are provided in the exam.
In planning questions, compare the tax before and after the proposal and state the saving in £.
Check the facts for associates carefully. A small detail may change the count.
Link advice to cash flow: say when tax is due and how a proposal changes the date.

Practice questions from Legitimate tax planning measures

Corporate Tax Planning: 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

Corporate Tax Planning: Rates, Marginal Relief and Instalments: frequently asked questions

How do I calculate marginal relief in ATX-UK?

Compute tax at 25% on taxable total profits. Then deduct (upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. The formula is in the tax tables. Use adjusted limits where there are associates or a short period.

How do associated companies affect corporation tax limits?

The lower and upper limits are divided by the number of associated companies plus one. This can push profits into the 25% band. Planning may therefore involve whether companies really are associated.

When does a company pay corporation tax by quarterly instalments?

When augmented profits exceed £1,500,000, adjusted for associates and period length. The tables give this profit threshold. Other companies normally pay nine months and one day after the period end.

How can a company defer corporation tax legitimately?

It can time deductible expenditure or income within the rules, and stay below the instalment threshold where this is genuine. Always check the facts and the commercial reason. Aggressive schemes carry risk.