Corporation Tax without the surprises.

Marginal Relief, fully worked.

The HMRC formula is: Marginal Relief = Standard fraction x (Upper limit, Augmented profits) x (Taxable profits / Augmented profits). The standard fraction for FY2023 onwards is 3/200 (0.015). For most owner-managed companies with no group income, augmented profits equal taxable profits and the formula simplifies. Three illustrations make the consequence visible.

The interesting case is the middle one. £150,000 of profit pays £36,000 in tax. £180,000 of profit pays £43,950, an extra £7,950 of CT on the additional £30,000, or 26.5% on every pound of that growth. The marginal rate is materially higher than both the small profits rate and the main rate, because each additional pound of profit also reduces the Marginal Relief deduction.

The planning implication is concrete. A company at £80,000 of profit in year one and £20,000 in year two pays £17,450 then £3,800, £21,250 across the two years. The same £100,000 of total profit recognised as £50,000 in each year (through deferred billing into the new period, accelerated capital allowances, or a shifted year-end) pays £9,500 each year, £19,000 total. The saving is £2,250, generated entirely by moving £30,000 of profit out of the marginal band and back below the small profits threshold. A structured year-end planning review is the practical mechanism for making this kind of smoothing real.

Smoothing within the band saves much less, because both years are still in the 26.5% marginal-rate territory. The biggest gains come from the edges: pulling profit below £50,000 (the 26.5% versus 19% gap) or pushing past £250,000 (where the marginal rate drops back to 25%). Identifying which side of the band you are on, and which side you are likely to be on next year, is the first calculation a 2026 plan should answer.

The associated-companies trap.

The £50,000 and £250,000 thresholds are divided by the number of associated companies, including the one whose return you are filing. Two associated companies share the band: each gets a £25,000 small profits threshold and a £125,000 upper threshold. Three associated companies divide the same way. An associated company is broadly any company under common control, even where the trades are entirely separate.

A common scenario: a director runs a profitable trading company at £40,000 of profit and also holds a small property company with two flats producing £6,000 of profit. Standalone, the trading company at £40,000 would pay 19% straight, £7,600 of CT. But because both companies are under common control, the small profits threshold for the trading company drops from £50,000 to £25,000. £40,000 of profit is now inside the marginal band, and the calculation becomes 25% of £40,000 less Marginal Relief of (3/200 x (£125,000, £40,000) x 1) = £10,000 less £1,275 = £8,725. The second company has cost the first £1,125 in additional CT, every year, regardless of what the second company is doing.

The planning move is rarely "shut the second company". More often it is to use the second company deliberately, to absorb capital allowances, to hold appreciating assets, or to separate risk, while accounting for the threshold cost in the overall structure. The trap is when no one recognises that a dormant or near-dormant subsidiary has dragged the trading parent into the marginal band without anyone noticing for two or three years.

Capital allowances: AIA, Full Expensing, and when to disclaim.

Most plant and machinery purchased by a UK company qualifies for one of two reliefs in the year of purchase. The Annual Investment Allowance gives a 100% first-year deduction on qualifying expenditure up to £1,000,000 a year (a permanent limit since April 2023). Full Expensing gives a 100% first-year allowance with no cap on most new and unused main pool plant and machinery for companies, also from April 2023, and made permanent in the 2023 Autumn Statement.

Where both apply, Full Expensing typically takes precedence on new main pool assets to preserve the AIA limit for assets that qualify only for AIA, special rate pool items (long-life assets, integral features, certain solar installations), and second-hand main pool assets that fall outside Full Expensing eligibility. The mechanics matter: AIA can be claimed on second-hand kit and on items that don't qualify for Full Expensing, so spending the AIA on the wrong asset can leave a useful relief unused. The full set of rules, AIA, Full Expensing, SBA, and the car rate matrix, is covered in the Capital Allowances guide.

The non-obvious move is to disclaim, either fully or partially. AIA and Full Expensing are claimed, not automatic; expenditure can instead be added to the pool and written down at 18% (main pool) or 6% (special rate pool) per year on a reducing balance. Where claiming the full first-year allowance would crash profits below the small profits threshold (releasing the relief at 19% rather than 26.5% in a future year inside the marginal band), or generate a loss with no immediate use, a partial claim often produces a better lifetime tax outcome. The question is always whether the relief is more valuable now or in a future year, and the answer depends on the profit path you can credibly forecast for the next twelve to twenty-four months.

CT600 deadlines and the payment-before-filing trap.

The corporation tax payment deadline runs ahead of the filing deadline. CT is due nine months and one day after the end of the accounting period. The CT600 itself is due twelve months after the period end. That means most companies are paying tax on a calculation they have not yet finalised, and if the final return shows a higher liability, interest accrues on the underpayment from day one of the original due date.

A company with a 31 March year-end has CT due on 1 January and the CT600 due the following 31 March. A company that closes the year strongly often discovers in November or December that the CT due in January will absorb a meaningful part of the bank balance, and that the December dividend that funded a director's personal tax bill or property purchase has already left the account. The cashflow exposure is structural, not a planning oversight.

Larger companies (those with augmented profits over £1.5 million, divided by the number of associated companies) move into quarterly instalment payments, paid in months 7, 10, 13 and 16 of a 12-month accounting period, which means the first instalment is due before the period has ended, on a forecast of the year's eventual profit. The transition between annual payment and quarterly instalments is the second cashflow trap: a company that crosses £1.5 million for the first time has no warning year, and the first instalment is calculated on the current period's expected liability rather than the prior year's actual.