Marginal Relief helps businesses with moderate profits pay less Corporation Tax. However, if you own multiple businesses, the Marginal Relief rules change. By knowing the rules, you can save your company money and avoid unexpected tax bills.
What is Marginal Relief?
Marginal Relief reduces the Corporation Tax rate for companies earning between £50,000 and £250,000 in taxable profits. Instead of paying the full 25% tax rate, these businesses receive a gradual reduction. Companies earning less than £50,000 pay the 19% rate.
For businesses with profits between these thresholds, Marginal Relief creates a sliding scale. This ensures a fair tax rate based on profits, acting as a buffer to prevent a sharp jump from 19% to 25%. Instead, the tax rate increases gradually, softening the impact for businesses.
How Multiple Businesses Affect Marginal Relief
If you own or control multiple businesses, HMRC divides the profit limits among them. This means each company has a lower threshold before reaching the full 25% tax rate. The more associated companies you have, the sooner you lose Marginal Relief.
For example:
- 1 Company: £50,000 lower limit, £250,000 upper limit
- 2 Companies: £25,000 lower limit, £125,000 upper limit
- 3 Companies: £16,667 lower limit, £83,333 upper limit
- 4 Companies: £12,500 lower limit, £62,500 upper limit
- 5 Companies: £10,000 lower limit, £50,000 upper limit
This system prevents larger businesses from artificially splitting profits across multiple companies to benefit from the lower tax rate. However, for genuinely separate businesses under the same ownership, it creates more challenges.
If a business owner controls 5 associated companies, Marginal Relief may no longer apply to any of them. Each company could face the full 25% Corporation Tax rate much sooner than expected.
What Counts as an Associated Businesses?
HMRC considers businesses “associated” if they share common ownership or control. This includes companies owned by the same person or group. Even if the businesses operate separately, HMRC may still link them for tax purposes.
Ownership is not the only factor. If 2 businesses share directors, financial dependency or common management, HMRC may also consider them associated.
Exceptions to Associated Business Rules
There are some exceptions to these rules. Dormant companies are generally not considered associated.
However, businesses in different industries are not automatically exempt. If they share common ownership or control, HMRC may still classify them as associated, regardless of their industry sector.
Since the rules can be complex, business owners should always seek professional advice to ensure they do not unknowingly classify themselves incorrectly.
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