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1. Companies with taxable profits between £50,000 and £300,000 pay corporation tax at the small companies’ rate.

 

2. Companies with profits between £300,000 and £1,500,000 (the lower and upper profits limits) benefit from marginal relief. They are charged at an average rate lower than the main (30 per cent) rate, but greater than the small companies’ rate. This is achieved by applying the main rate and then reducing the tax charged by a given fraction of the amount by which £1,500,000 exceeds the profits. This marginal relief has the effect of easing the transition from the small companies’ rate to the main rate.

3. The example below illustrates the effect of marginal relief for a company with taxable profits for £500,000. Its tax liability is calculated as follows:

£500,000 at 30% £150,000

less one fortieth of £1,000,000

(upper profits limit of £1,500,000

less the profits of £500,000) £25,000

Tax payable £125,000

The same result is achieved by the following calculation:

£300,000 at 20% (the small

companies’ rate) £60,000

plus £200,000 at 32.5% £65,000

Tax payable £125,000.

4. With effect from 1 April 2000, companies with profits of up to £10,000 pay corporation tax at the starting rate of 10 per cent (introduced in the Finance Act 1999). Marginal relief is given to companies with profits between £10,000 and £50,000, to ease the transition between the starting rate and the small companies’ rate.

5. Where two or more companies are associated together, the profits limits for both the small companies’ rate and the starting rate are divided by the number of associated companies.

6. About 270,000 companies (over 60 per cent of all taxpaying companies) will benefit from the starting rate. In addition, over 100,000 companies will benefit from the small companies’ rate.

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