Companies pay corporation tax on their profits, but there are at least 2 rates of corporation tax. It can be confusing to work out which rate to use.

Main rate and small profits rate

The main rate of corporation tax is 25%. Companies pay tax on their profits and capital gains at this rate unless they fall into one of the categories below, which entitle them to pay tax at a lower rate.

If a company’s profits are below £50,000 for a year, the rate of tax they will pay is 19%.

If a company’s profits are more than £50,000 but less than £250,000, they will pay tax at the main rate (25%), but they are entitled to claim marginal relief.

Marginal relief

The calculation of marginal relief is complex, but it gradually increases the rate that a company pays from 19% to 25%, so that there is not a cliff-edge where the rate jumps up by 6 percentage points. The entire profits are taxed at 25% and then the relief is deducted to work out the tax payable.

Associated companies

Where more than one company is controlled by the same person, this affects the marginal relief that these companies are entitled to. The thresholds are split between the companies.

Talking Numbers Accountancy and Bookkeeping can help you to understand what this means for you. Tax doesn’t need to be taxing – we can help you understand your numbers and ensure that you are taking advantage of all available reliefs and allowances. Get in touch today for a free, no-obligation consultation.