Marginal relief

Definition

Marginal relief applies to companies with taxable profit between the lower and upper limits. Rather than paying a flat 19% or 25%, the effective rate tapers upward across the band, so a company just over £50,000 does not suddenly pay 25% on everything.

In plain terms

It stops a cliff-edge where earning one extra pound of profit would trigger a much bigger tax jump. The rate creeps up smoothly instead.

Why it matters for your company

If your profits sit in the £50,000–£250,000 band, marginal relief shapes your bill. Estimate it with the corporation tax calculator.

In practice

Picture a UK limited company whose profits, over the course of an accounting year, land somewhere inside the marginal relief band. The director doesn't see two separate tax rates fighting over the same pound — the effective rate simply edges upward as profits climb through the band, then settles once profits clear the top of it. There's no single moment where the bill jumps; the transition is spread across the year's results rather than triggered at one threshold.

This matters most when a company is forecasting rather than reporting. A director planning ahead of year-end — deciding whether to bring forward a purchase, delay invoicing, or top up a pension contribution — is really deciding where in the band that year's profit will sit, and marginal relief is what makes that positioning worth thinking about at all. Outside the band, the same decisions have a flatter, more predictable effect on the tax outcome.

Common pitfalls

The most frequent mistake is treating the limits as fixed thresholds. They're not — the limits are apportioned across the number of companies under common control and adjusted for a shorter or longer accounting period. A company assuming it sits comfortably below the lower limit can find the actual limit has shrunk once associated companies are counted, pulling it into the tapered band unexpectedly.

A second pitfall is leaving the calculation until the return is due. Because the relief depends on the shape of the whole year's profit, not a single figure checked mid-year, companies that only look at it retrospectively lose the chance to influence where they land in the band while there's still time to act. Reviewing the position with an accountant well before the year-end, rather than after, is what actually lets the relief work in the company's favour.