UK Corporation Tax operates on a tapered scale. If your taxable profits are £50,000 or less, you qualify for the Small Profits Rate of 19%. If your profits exceed £250,000, you pay the Main Rate of 25%. However, if your profits fall between £50,000 and £250,000, your company is subject to the main rate adjusted by Marginal Relief, creating an effective tax rate of 26.5% on profits within this band.
Why Marginal Relief Matters
Because profits within the £50k to £250k margin face a high marginal rate of 26.5%, businesses in this bracket must plan carefully. Every pound of deductible business expense reduces tax by 26.5p rather than just 19p.
Crucial Planning Strategies
- Accelerated capital spending: Take advantage of "Full Expensing" allowances which permit companies to write off 100% of the cost of qualifying plant and machinery in the year of purchase.
- Workplace pension contributions: Employer pension payments are highly effective deductions from corporate profit.
- Restructuring associated companies: Be cautious! The £50,000 and £250,000 thresholds are divided by the number of associated companies (companies under common control), which can unexpectedly drag your firm into higher tax brackets.