Corporation Tax

A company pays the small profits rate below the lower limit and the main rate above the upper one. In between it pays the main rate less Marginal Relief, which shrinks to nothing as profits approach the upper limit.

⚠ Marginal Relief is not a third rate

Inside the band, each extra pound of profit costs 26.5% — more than the 25% main rate, not less. The relief is a fixed deduction that gets smaller as you earn more, so earning more claws it back faster than the rate itself charges. That is the thing worth knowing before deciding what to leave in the company.

⚠ The limits are not £50,000 and £250,000 for everyone

They are divided by the number of associated companies plus one. A director with three other companies under their control has a lower limit of £12,500 and an upper limit of £62,500 — so the main rate starts at a quarter of the profit most calculators assume.

They are also scaled by the length of the accounting period. A six-month period has limits of £25,000 and £125,000.

Companies are associated if one controls the other, or if both are under the control of the same person or people. It is a wider test than a group structure and it catches many owner-managed setups.

Financial years, not tax years

Corporation Tax runs on financial years starting 1 April, not the 6 April tax year the rest of this site uses. If your accounting period straddles 1 April and the rates changed, the profit is apportioned between them by days. This page assumes one set of rates applies throughout.

What this does not cover

Augmented profits — the statutory formula scales the relief by taxable profits over augmented profits, which differ only when the company has received distributions from companies it is not associated with. This page takes them as equal, which is right for an owner-managed company and wrong for a holding structure with outside dividend income.

Also: ring fence profits from oil and gas, which have their own rates and their own fraction. Non-UK resident companies and close investment holding companies, which cannot claim the relief at all. Losses carried in or back. Research and development relief, the patent box, and creative industry reliefs. And the tax on taking the money out — for that see the dividend tax calculator.

Where these figures come from

Every rate above is read from a dated rate file rather than written into the page, and each one is checked against the gov.uk page it came from. How these numbers are kept right sets out the whole process.

Dividend tax calculator