Corporation tax marginal rate – how do you calculate corporation tax marginal relief?
Understanding the corporation tax marginal rate and how to calculate marginal relief is essential for businesses aiming to optimise their tax liabilities. Marginal relief applies when a company’s profits fall between certain thresholds, providing a gradual tapering of the corporation tax rate. This article explains the calculation process step-by-step, helping company directors and finance teams accurately determine their tax position and plan accordingly.
What’s the corporation tax main rate?
The Corporation Tax main rate for companies with profits in excess of £250,000 increased to 25% on 1 April 2023. A Small Profits Rate (SPR) of 19% was also introduced from the same date for companies with profits of up to £50,000, ensuring these companies continue to pay Corporation Tax at the same rate as was previously the case.
How does marginal rate corporation tax work?
Where a companies profits between £50,000 and £250,000 a marginal rate of Corporation Tax applies that bridges the gap between the lower and upper limits. The lower and upper limits are proportionately reduced for short accounting periods of less than 12 months and where there are associated companies.
The effect of marginal relief is that the effective rate of Corporation Tax gradually increases from 19% where profits exceed £50,000 to 25% where profits are more than £250,000.
How to calculate your marginal rate
The amount of Corporation Tax will be found by multiplying taxable profits by the main rate of 25% and deducting marginal relief. For the fiscal year 2023, the marginal relief fraction will be 3/200. HMRC also has an online calculator that can be used to calculate marginal relief on Corporation Tax profits. If you are interested in finding out how much relief you can claim it’s important to note that you should only calculate your marginal relief on your corporation tax profits from the 1st of April 2023.
Contact Us
If you need help understanding corporation tax marginal relief or want expert assistance with your corporation tax planning, please contact our Moore South tax team today. Our specialists can guide you through the calculations, ensure compliance with the latest tax rules, and help you optimise your corporation tax liabilities effectively. Find out more about our tax services here.