CTM03925 | Small profits rate: financial year 2023 onwards: no associated companies: profits exceeding the lower limit: marginal relief

CTA10/S18B

Where in any accounting period of twelve months:

• a company has no associated companies, and

• its augmented profits for the accounting period exceed the lower limit but do not exceed the upper limit

the CT charged at the main rate on its total taxable profits is reduced by an amount of marginal relief calculated using the following formula:

(F x (U – A)) x (N ÷ A)

Where

F = the standard marginal relief fraction (set by Parliament for each financial year)

U = the upper limit

A = the amount of augmented profits of the accounting period (CTM03915)

N = the amount of taxable total profits (CTM03915).

Standard marginal relief fraction

The standard marginal relief fraction is the difference between the main rate and the marginal rate expressed as a fraction.

What is the marginal rate?

Where the small profits rate is 19% and the main rate is 25%:

CT payable on profits at the upper limit = £62,500 ( = £250,000 x 25%)

Less

CT payable on profits at the lower limit = £9,500 ( = £50,000 x 19%)

Equals

Tax payable on the difference of £200,000 = £53,000

The marginal rate is therefore 26.5% ( = £53,000 / £200,000)

The difference between the marginal rate of 26.5% and the main rate of 25% is 1.5% which is then expressed as 3/200.

Marginal relief provides a gradual increase in the CT rate between the small profits rate and the main rate.

Example

For the period ended 30 September 2026 a company has profits of £90,000. It has no associated companies and has received £8,000 exempt distributions of a qualifying kind that are not excluded. Its CT liability is calculated as follows:

£90,000 x 25% = £22,500

Less marginal relief

(3/200 x (£250,000 - £98,000)) x (£90,000/£98,000) = £2,094

CT liability = £22,500 - £2,094 = £20,406