Glossary

Small profits rate

Krishna Prasad Dahal, Chartered Accountant

Reviewed by Krishna Prasad Dahal FCCA, ACA (ICAEW), FCA (ICAI India)ICAEW Council Member · Last reviewed

Definition

The small profits rate is the 19% rate of Corporation Tax for companies with profits of £50,000 or less in a 12-month accounting period. It has applied since 1 April 2023 and still applies for the financial year starting 1 April 2026. Profits above £50,000 are taxed at the 25% main rate, reduced by Marginal Relief when profits are no more than £250,000.

When the £50,000 limit is lower

  • Associated companies: the limit is divided by the number of associated companies plus one. A company with three associated companies has a limit of £12,500.
  • Short accounting periods: the limit is reduced in proportion. A six-month period has a limit of roughly £25,000, because HMRC strictly works it out by days.

Which profit figure counts

The test uses augmented profits: taxable total profits plus exempt dividends received from companies outside the group. A company with £45,000 of taxable profits and £10,000 of dividends from an unrelated company has augmented profits of £55,000, so Marginal Relief applies instead of the flat 19%.

Who cannot use it

Close investment-holding companies are excluded, and non-UK resident companies generally cannot use it either. What a company pays at each profit level is set out in current Corporation Tax rates.

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