CTM03905 | Small profits rate: financial year 2023 onwards: introduction
From HM Revenue & Customs · Company Taxation Manual
With effect from 1 April 2023, the standard small profits rate of Corporation Tax for non-ring fence profits has been reintroduced at by and ensuring that companies with smaller profits pay CT a lower rate when the main rate is increased from the same date.
The small profits rate previously applied for financial years up to and including 2014. For further details, see onwards.
The rules that apply to the standard small profits rate largely replicate the earlier scheme and distinguish between:
total taxable profits, and
augmented profits - defined at as the total taxable profits plus exempt distributions of a qualifying kind received by the company that are not excluded.
Further details of what is meant by profits in this context are at .
Where the profits do not exceed a set lower limit, the total taxable profits are charged at a lower rate of CT, known as the standard small profits rate. This is distinguished from the small ring fence profits rate, .
Where the profits exceed a set upper limit, the total taxable profits are charged at the CT main rate.
Marginal Relief
Where profits fall between the lower and upper limits, the total taxable profits are charged at the main rate of CT and the resulting tax is reduced by a sum of marginal relief computed by applying a ‘standard fraction’ to an amount as calculated at . More details of the circumstances in which the standard small profits rate of tax or marginal relief applies are at onwards.
Scope
The legislation applies to all UK resident companies as defined at , including unincorporated associations, other than:
Close investment-holding companies, defined at . See ;
Permanent establishments of non-UK resident companies chargeable to CT unless a treaty non-discrimination article applies. ;
Residual income of Real Estate Investment Trusts. See ;
Unit trusts or open-ended investment companies. See .
Rates, limits and fractions
For a table of rates, limits and fractions for the small profits rate and marginal relief from financial year 2023 onwards see .