Advanced Taxation (UK) · Tax administration and the UK tax system

Corporation Tax Rates, Marginal Relief and Instalments

Updated 11 October 2026 · Fact-checked

UK companies pay 19% on profits up to £50,000, 25% above £250,000, and marginal relief in between. Limits are divided by associated companies and time-apportioned for short periods. Large companies, with profits over £1,500,000, pay by quarterly instalments. Work out augmented profits first, then apply the formula.

Understand Corporation Tax Rates, Marginal Relief and Instalments

Corporation tax is charged on a company's taxable total profits (TTP) for each accounting period. For the financial year 2025, the tax tables give a small profits rate of 19% and a main rate of 25%. The lower limit is £50,000 and the upper limit is £250,000.

If profits are at or below the lower limit, you charge 19%. If profits are at or above the upper limit, you charge 25%. Between the limits, you charge 25% on all TTP and then deduct marginal relief. This gives an effective rate that rises smoothly from 19% to 25%.

The limits are measured against augmented profits. Augmented profits are TTP plus exempt distributions received from non-group companies, which is usually dividends from outside the group. Franked investment income is such a dividend. The limits are divided by 1 plus the number of associated companies, and they are reduced pro rata for an accounting period shorter than 12 months. Marginal relief uses augmented profits, not TTP alone.

Payment is normally nine months and one day after the end of the accounting period. A large company has profits above the £1,500,000 threshold in the tables (this threshold is also divided by 1 plus the number of associated companies, and reduced for short periods). It must pay by quarterly instalments. For a 12-month period, the instalments fall due on the 14th day of months 7, 10, 13 and 16 from the start of the period. So the first two fall in the period, and the third and fourth fall after the period has ended. Instalment timing and the very large company rule (profits over £20 million) are not in the tables, so learn them.

Key rules to remember

Rates: TTP ≤ £50,000: 19%. TTP ≥ £250,000: 25%. Between: 25% less marginal relief; Test against augmented profits and adjusted limits. These figures apply to the financial year 2025 and are given in the tax tables.
Marginal relief: (Upper limit – Augmented profits) × 3/200 × TTP ÷ Augmented profits; Deduct from corporation tax at 25% on TTP. The upper limit is adjusted for associated companies and short periods.
Augmented profits: TTP + exempt dividends received from non-group companies; Dividends from group (51% subsidiary) companies are ignored.
Adjusted limits: Limit ÷ (1 + number of associated companies) × months in period ÷ 12; Applies to the £50,000, £250,000 and £1,500,000 limits.
Large company instalments: Augmented profits above £1,500,000 (adjusted): equal instalments, four for a 12-month period; For a 12-month period, due 6 months and 13 days after the start of the period (the 14th day of month 7), then every 3 months: the 14th day of months 7, 10, 13 and 16. The third and fourth fall after the period ends. For a shorter period, the final instalment falls 3 months and 14 days after the period end, with earlier ones at 3-month intervals before it. The very large company threshold of £20 million is not in the tables, so learn it.

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

Use this order for any question on rates, marginal relief or instalments.

1Compute TTP for the accounting period. Split it if the period exceeds 12 months, because a long period is split into a 12-month period and a remainder.
2Count associated companies and the months in the period. Adjust the £50,000, £250,000 and £1,500,000 limits.
3Compute augmented profits by adding non-group dividends to TTP.
4Compare augmented profits with the adjusted limits. If at or below the lower limit use 19%. If at or above the upper limit use 25%.
5If in between, compute tax at 25% on TTP, then marginal relief using the formula, and deduct it.
6Compare augmented profits with the adjusted £1,500,000. If higher, the company is large, so set out the quarterly instalment dates and amounts.
7Show all workings to the nearest £, and state any assumption on associated companies.

Quickest way: Marginal relief shortcut

When to use it: Use when augmented profits fall between the adjusted limits and you need the tax figure fast.

Write 25% × TTP.
Write the relief as (upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits.
Subtract. If there are no non-group dividends, TTP equals augmented profits, so the relief simplifies to (upper limit – TTP) × 3/200.
Check the answer is sensible: the effective rate must lie between 19% and 25%.

Common mistakes in Corporation Tax Rates, Marginal Relief and Instalments

Using TTP instead of augmented profits to test the limits
Students forget that dividends from non-group companies are included.
Fix: Always write the augmented profits line, even when it equals TTP.
Ignoring associated companies
The company count is buried in the scenario.
Fix: Scan for companies under common control and divide the limits by 1 plus the number of associates.
Not time-apportioning limits for a short period
Students focus on the rates and forget the period length.
Fix: Multiply each limit by months ÷ 12 before comparing.
Applying marginal relief to dividends in the tax charge
Students confuse augmented profits with the base of the tax.
Fix: Tax is charged on TTP only. Augmented profits appear only in the limits test and the relief formula.
Giving wrong instalment dates or amounts
Dates are not in the tax tables, so they are forgotten, and students assume all instalments fall within the period.
Fix: For a 12-month period, the first instalment is due 6 months and 13 days after the start of the period, with later ones every 3 months, so the third and fourth fall after the period ends. For a shorter period, the final instalment is 3 months and 14 days after the period end. The instalments are equal, so for a 12-month period each is one quarter of the liability.

Worked examples

Example 1

Delta Ltd has no associated companies. For the 12 months to 31 March 2026 it has TTP of £180,000. It receives no non-group dividends. Compute the corporation tax liability.

Show the solution

Augmented profits = TTP = £180,000. No associates and 12 months, so limits stay at £50,000 and £250,000.
£180,000 lies 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 × 3/200 = £1,050.
Corporation tax = £45,000 – £1,050 = £43,950.

Answer: £43,950

Example 2

Echo Ltd has one associated company. For the year to 31 March 2026 it has TTP of £120,000 and receives non-group dividends of £30,000. Compute the corporation tax liability and say whether it pays by instalments.

Show the solution

Associated companies: 1, so divide limits by 2. Lower limit = £25,000, upper limit = £125,000, instalment threshold = £750,000.
Augmented profits = £120,000 + £30,000 = £150,000.
£150,000 exceeds the adjusted upper limit of £125,000, so the main rate applies with no marginal relief.
Tax = £120,000 × 25% = £30,000.
Augmented profits of £150,000 are below the adjusted instalment threshold of £750,000, so Echo Ltd is not large and pays nine months and one day after the year end.

Answer: £30,000, payable nine months and one day after the year end, with no instalments

Exam tips

Write the adjusted limits at the top of your answer before any calculation. Markers award marks for this step.
Look for non-group dividends and associated companies in every scenario. These details are the usual traps.
In a planning question, quote the effective marginal rate, which is 26.5% on profits between the limits where there are no dividends, because it supports advice on timing profits or dividends.
For instalments, state the dates and the amounts, then link them to cash flow advice for professional skills marks.

Practice questions from Tax administration and the UK tax system

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 are the corporation tax rates for ATX-UK?

The tax tables give a small profits rate of 19% and a main rate of 25% for the financial year 2025. The lower limit is £50,000 and the upper limit is £250,000. The marginal relief fraction is 3/200.

How do associated companies affect marginal relief?

You divide the lower and upper limits by 1 plus the number of associated companies. The instalment threshold is divided in the same way. This can push a small company into the main rate sooner.

What is the marginal relief formula?

Marginal relief = (upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits. Deduct it from tax at 25% on TTP. The limits used must be the adjusted ones.

When does a company pay corporation tax by instalments?

A large company has augmented profits above £1,500,000, adjusted for associated companies and short periods. For a 12-month period it pays four equal instalments, due on the 14th day of months 7, 10, 13 and 16 from the start of the period, so the last falls after the period ends. A very large company, with profits over £20 million, pays earlier.