Since 1 April 2023 a company’s Corporation Tax rate depends on how much profit it makes. Small profits are taxed at 19%, large profits at 25%, and in between the company pays 25% and then takes marginal relief off the bill. Two things move the boundaries: a period shorter than 12 months, and associated companies. This page explains the calculation, shows where Tax Optimiser gets each figure, and covers the CT600 boxes involved, 326 to 345 and 430 to 440.
The rates and limits
| Augmented profits for a 12-month period | What the company pays |
|---|---|
| £50,000 or less (the lower limit) | 19%, the small profits rate |
| Between £50,000 and £250,000 | 25%, less marginal relief |
| £250,000 or more (the upper limit) | 25%, the main rate |
Augmented profits are the profits chargeable to Corporation Tax plus exempt dividends received from companies outside the group. For most small companies the two figures are the same.
Some companies always pay the main rate whatever their profits, notably close investment-holding companies and companies not resident in the UK.
How marginal relief is worked out
The relief is:
3/200 × (upper limit − augmented profits) × (taxable profits ÷ augmented profits)
When there are no exempt dividends the last part is 1, so the relief is simply 3/200 of the gap between the profits and the upper limit. The closer profits are to the upper limit, the smaller the relief.
Example 1: a full year
Example Thresholds Ltd has taxable profits of £85,000 for the year to 31 March 2025, and no associated companies.
- Tax at the main rate: £85,000 × 25% = £21,250.00
- Marginal relief: 3/200 × (£250,000 − £85,000) = £2,475.00
- Corporation Tax: £21,250.00 − £2,475.00 = £18,775.00
That is an overall rate of about 22.1%. Each extra pound of profit between the limits costs 26.5p, because it adds 25p of tax and removes 1.5p of relief.
The computation document sets the working out on its Marginal Relief page, one column for each financial year the period touches.
Periods shorter than 12 months
The limits are for a 12-month period. For a shorter one they are cut down in proportion to its length, so a company cannot stay under the limit just by having a short period. This matters most in a company’s first period and when a year end is changed.
Example 2: a 275-day first period
The same company’s first period ran from 1 July 2023 to 31 March 2024, 275 days, again with taxable profits of £85,000.
- Lower limit: £50,000 × 275 ÷ 365 = £37,671.23
- Upper limit: £250,000 × 275 ÷ 365 = £188,356.16
- Marginal relief: 3/200 × (£188,356.16 − £85,000) = £1,550.34
- Corporation Tax: £21,250.00 − £1,550.34 = £19,699.66
Same profit, £924.66 more tax than the full year, purely because the period is shorter.
A period of account longer than 12 months is split into two returns, and the second is nearly always a short period with reduced limits. See Accounting periods longer than 12 months.
Associated companies
The limits are shared between a company and its associated companies. Divide each limit by the number of associated companies plus one (the company itself). With one associated company the limits are halved; with three they are quartered.
Two companies are associated if one controls the other, or the same person or group of people controls both. In outline:
- Count a company if it was associated at any time in the accounting period, even for a day.
- Count companies anywhere in the world, not only UK ones.
- Do not count a company that was dormant for the whole period, or a holding company that does nothing but hold shares in its subsidiaries and pass their dividends on.
- Control can come through relatives or business partners, but their shareholdings are only added in when there is substantial commercial interdependence between the two companies.
HMRC’s guidance on marginal relief for Corporation Tax has the full rules. The count is the director’s or adviser’s judgement; Tax Optimiser cannot work it out from the accounts.
Entering the number
- Open the period and choose Corp Tax Calculations.
- On the General tab, enter the number in Number of associated companies in this period?. Enter the other companies only: do not count the company itself.
- Click Save. The limits, the tax and box 326 update straight away.
The Related companies list further down the same tab is a record of who the companies are. It does not change the count; the number in this field does.
Example 3: one associated company
In the year to 31 March 2026 the director also controls a second trading company. Taxable profits are again £85,000.
- Lower limit: £50,000 ÷ 2 = £25,000
- Upper limit: £250,000 ÷ 2 = £125,000
- Marginal relief: 3/200 × (£125,000 − £85,000) = £600.00
- Corporation Tax: £21,250.00 − £600.00 = £20,650.00
It makes no difference how much profit the other company makes. A second company with no profit at all still halves the limits, unless it was dormant throughout.
The CT600 boxes
Everything in this part of the return is calculated for you. To see it, choose CT600 Boxes in Corp Tax Calculations and scroll to Tax calculation.
Box 326: Number of associated companies in this period
The number you entered on the General tab, left blank when there are none. For periods ending before 1 April 2023 the same field is the number of 51% group companies, which goes in box 625 instead.
Boxes 327 and 328: Associated companies in the first and second financial year
These are used in place of box 326 only when a period straddles 1 April and the rates or limits differ between the two financial years. The limits have been the same in every financial year since 1 April 2023, so Tax Optimiser leaves them blank and uses box 326.
Box 329: Small profits rate or marginal relief
An X when the company is taxed at the small profits rate or is claiming marginal relief. Tax Optimiser ticks it from the calculation. It is left clear for a company paying the full main rate, and for a close investment-holding company.
Boxes 330 to 345 and 380 to 425: The tax table
One block for each financial year the period falls in. A financial year runs from 1 April and is named after the year it starts in, so the year to 31 March 2026 is financial year 2025. Each row has the profit taxed (335), the rate (340) and the tax (345). A period that crosses 31 March has its profit split between the two blocks by days.
A company below the lower limit shows 19.00 in the rate column. A company between the limits shows 25.00: the return taxes the whole profit at the main rate here, and marginal relief comes off further down.
Box 430: Corporation Tax
The total of the tax column, before marginal relief.
Box 435: Marginal relief
The relief from the formula above, worked out for each financial year and added together. HMRC checks this figure against its own calculation when the return is filed, to the penny.
Box 440: Corporation Tax chargeable
Box 430 minus box 435. This is the tax on the profits before any other reliefs or charges, such as double taxation relief or the tax on loans to participators.
What Tax Optimiser does not include
- Exempt dividends in augmented profits. Tax Optimiser treats augmented profits as equal to taxable profits. If the company received exempt dividends from a company that is not its 51% subsidiary and is not in the same group, the limits test and the relief would be different, and the return needs working out separately.
- Different numbers of associated companies in each financial year (boxes 327 and 328), for the reason given above.
To make a close investment-holding company pay the main rate, choose that Company Type on the first step of the submission wizard.
Related: every CT600 box explained and the Corporation Tax computation.
Common questions
Do I have to claim marginal relief?
Yes, it is a claim, made by putting the figure in box 435 and an X in box 329. Tax Optimiser does both whenever profits fall between the limits.
What is the effective rate of Corporation Tax between £50,000 and £250,000?
It rises gradually from 19% to 25%. Each pound of profit between the limits is taxed at an effective 26.5%.
Does a dormant company count as an associated company?
Not if it was dormant for the whole accounting period. A company that traded for part of the period does count.
My spouse owns another company. Are the two associated?
Only if there is substantial commercial interdependence between the companies, for example one relies on the other for finance, customers or premises. Two unconnected businesses owned by a married couple are not normally associated.
Why is the tax higher in a short accounting period?
The £50,000 and £250,000 limits are reduced in proportion to the length of the period, so the same profit sits higher up the scale.
HMRC’s marginal relief calculator gives a slightly different answer. Which is right?
For a short period that falls in a financial year containing 29 February, HMRC’s online calculator divides by 366 days and its return service by 365. Tax Optimiser files the figure the return service accepts. For 12-month periods the two agree.
The other company made a loss. Do the limits still halve?
Yes. The limits are divided by the number of associated companies whatever their results.