Overview
The 2025 Spring Statement confirmed that HMRC will maintain the current corporation tax structure introduced in April 2023 — a two-tier system with a 25% main rate and a 19% small profits rate, connected by marginal relief. For most UK companies, this means year-end planning has never been more important.
In this article we walk through the current rate bands, how marginal relief is calculated, and the practical steps directors and their accountants should take before the financial year closes.
The Three Rate Bands Explained
Since 1 April 2023, UK corporation tax has operated on a three-band structure depending on a company's taxable profits in the accounting period:
| Taxable Profits | Rate Applied | Effective Rate | Mechanism |
|---|---|---|---|
| Up to £50,000 | 19% | 19% | Small profits rate |
| £50,001 – £250,000 | 25% with relief | 19% – 25% | Marginal relief |
| Over £250,000 | 25% | 25% | Main rate |
The marginal relief band is where planning opportunities are richest — and where directors most often benefit from professional advice. The effective marginal rate within the band is 26.5%, which is actually higher than the headline 25% main rate — a counterintuitive feature that catches many companies off guard.
How Marginal Relief Works
Marginal relief (MR) is calculated using the following formula set out in Corporation Tax Act 2010 s.19:
MR = (Upper Limit – Augmented Profits) × (Taxable Total Profits ÷ Augmented Profits) × Standard Fraction (3/200)
The "augmented profits" include dividends from non-group companies. The key takeaway: the more associated companies you have, both the £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. This can significantly affect the applicable rate for groups and related businesses.
Associated Companies — A Common Trap
From April 2023, HMRC reintroduced the associated companies rules. Two companies are associated if one controls the other, or both are under common control. This means:
- A director with two companies sees each company's thresholds halved — to £25,000 and £125,000 respectively.
- Family shareholdings can trigger association even where there is no formal group structure.
- Dormant companies can still count as associated if they were active at any point in the period.
This is one of the most misunderstood changes of the 2023 reforms and remains highly relevant for owner-managed businesses in 2025.
Year-End Planning: 7 Actions to Take Now
With the rate structure confirmed for 2025, the window before your year-end is the most valuable time to act. Here are the seven areas we typically review with clients:
- Accelerate qualifying capital expenditure. Full expensing for main pool plant and machinery provides a 100% first-year allowance. Bringing forward capex decisions can reduce profits into a lower band or below the marginal zone entirely.
- Review director pension contributions. Employer pension contributions are fully deductible against corporation tax and don't trigger a benefit-in-kind. Contributions made before year-end reduce taxable profits pound-for-pound — particularly effective if profits sit in the 26.5% marginal band.
- Time your salary and bonus payments. Bonuses accrued but unpaid at year-end are deductible provided they are paid within nine months. If your year-end is 31 March 2025, you have until 31 December 2025.
- Assess R&D claim eligibility. The merged R&D scheme now applies for most companies. If you're developing new software, products or processes, document qualifying activities before year-end to maximise the claim.
- Review associated company positions. If restructuring can lawfully reduce the number of associated companies, thresholds may be restored — lowering the effective rate on profits in the marginal band.
- Consider group relief. If you operate a group, losses in one company can offset profits in another via group relief. Review the group structure now rather than waiting for the tax return.
- Defer income where it makes sense. Deferring invoicing or income recognition into the next period may legitimately reduce current-year profits. This requires careful consideration of accounting standards and commercial reality.
The interaction between profit levels, associated companies, capital allowances and group relief is complex. At Manse Advisory, we build a year-end tax model for every client — typically 6–8 weeks before the period closes — so there's still time to act on the findings. Book a free consultation to get yours.
Quarterly Instalment Payments (QIPs)
If your company's taxable profits exceed £1.5 million (or a lower threshold if you have associated companies), you are required to pay corporation tax in quarterly instalments rather than nine months after the year-end. For periods ending 31 March 2025, the first QIP was due 14 October 2024.
Late or underpaid instalments attract HMRC interest at the current rate of 7.25% (base + 2.5%), which has risen significantly since 2022. Accurate quarterly profit forecasting is therefore more valuable than ever.
Looking Ahead: What Could Change?
The 2025 Spring Statement did not introduce new corporation tax changes for the current Parliament. However, the Office of Tax Simplification's ongoing review of reliefs, and consultations on further R&D reform, mean the landscape could shift in the Autumn Budget. We recommend:
- Subscribing to our Insights updates for real-time commentary on any new announcements.
- Not locking in multi-year tax structures without a review clause — keep plans flexible.
- Engaging with your advisor before the Budget, not after.
Conclusion
The 2025 corporation tax landscape rewards proactive planning. The maintained 25% main rate, combined with the 26.5% effective marginal rate and the reintroduced associated companies rules, means that directors cannot afford to be passive. A well-timed year-end review — addressing capital allowances, pensions, R&D and group structure — can materially reduce your liability within the rules.
If you'd like Manse Advisory to model your 2025 position and identify savings opportunities, get in touch for a free 30-minute consultation.