Nichola Ross Martin's Tax Consultancy

 Company tax rates

		2012/13*	2011/12	2010/11	2009/10	2008/09
Rate	Profits £	Effective %	Effective %	Effective %	Effective %	Effective %
Small	0 - 300,000	20	20	21	21	21
Marginal	300,001 - 1,500,000	26.25	27.5	29.75	29.75	29.75
Main	1,500,001 and above	25	26	28	28	28
Fraction		1/80th	3/200ths	7/400ths	7/400ths	7/400ths

* Provisional rates

The company tax year starts on 1 April.

Companies: the marginal relief calculation

Marginal relief is given by: 

(Upper limit – profits) x basic profits x fraction
                                           profits

1. The upper limits are currently £300,000 or £1,500,000.
2. Basic profits are the companies profits, and,
3. Profits are basic profits + franked investment income, which is grossed up by 100/90.
4. Group dividends are from 51% groups (51% + subsidiaries or fellow 51% + subsidiaries of a parent).
5. The fraction depends upon the financial year applies, and when a company’s accounting period spans two financial years it may be necessary to time apportion the profits. This does not affect associates unless there is a change in the relevant bands.

Upper and lower limits are reduced where:

1. There is a short period of account, and, or,
2. There are associated companies, by dividing the limits by one plus the number of associated companies, which the company has at any time during its accounting period.

Alternatively, you can calculate corporation tax on slices of profit using marginal rates: 

• The first £300,000 of profit is taxed at the small company rate (21%)
• The next £1,200,000 is taxed at the marginal rate (variable)
• Profits over £1,500,000 are taxed at the main rate (28%, but reducing by 1% from 2011)

Basic example:

For a company with a 31^st March 2010 year end and profits of £500,000, and no associated companies, and no franked investment income, the marginal relief calculation is as follows:

Tax @ 28% on £500,000            =          140,000
Less:
Marginal relief

(1,500,000 – 500,000) x 7/400     =          (17,500)

Tax due                                     =          122,500

Alternatively, you can do this calculation as follows:

First 300,000 @ 21%                 =            63,000

Next £200,000 @ 29.75%           =            59,500

Tax due                                    =          122,500

What is the marginal rate?

If small company’s rate is 20% and the main rate is 26%

300,000 x 20%              =  60,000

1500,000 x 26%            = 390,000

1200,000 x X%              = 330,000

330,000/1,200,000         =27.5% marginal rate

 

If small company’s rate is 20% and the main rate is 25%

300,000 x 20%              =  60,000

1500,000 x 25%            = 375,000

1200,000 x X%              = 315,000

315,000/1,200,000         =26.25% marginal rate

What is the marginal rate fraction?

The difference between the main rate and the marginal rate expressed as a fraction. 

So 29.75% - 28% = 1.75% = 7/400 

28.75% - 27% = 1.75% = 7/400 

27.5% - 26% = 1.5% = 3/200

26.25% - 25% = 1.25% = 1/80