CTM03905 - Small profits rate: financial year 2023 onwards: introduction

CTA10/Part 3A

With effect from 1 April 2023, the standard small profits rate of corporation tax for non-ring fence profits has been reintroduced at CTA10/PART3A by FA2021/S6 and Sch1 ensuring that companies with smaller profits pay CT a lower rate when the main rate is increased from the same date.

The small profits rate previously applied for financial years up to and including 2014. For further details, see CTM03500 et seq.

The rules that apply to the standard small profits rate largely replicate the earlier scheme and distinguishes between:

  • total taxable profits, and
  • augmented profits - defined at CTA10/S18L as the total taxable profits plus exempt distributions of a qualifying kind received by the company that are not excluded.

Further details of what is meant by profits in this context are at CTM03915.

Where the profits do not exceed a set lower limit, the total taxable profits are charged at a lower rate of CT, known as the standard small profits rate. This is distinguished from the small ring fence profits rate, CTA10/S279A.

Where the profits exceed a set upper limit, the total taxable profits are charged at the CT main rate.

Marginal Relief

Where profits fall between the lower and upper limits, the total taxable profits are charged at the main rate of CT and the resulting tax is reduced by a sum of marginal relief computed by applying a ‘standard fraction’ to an amount as calculated at CTM03925. More details of the circumstances in which the standard small profits rate of tax or marginal relief applies are at CTM03915 onwards.

Scope

The legislation applies to all companies as defined at CTA10/S1121, including unincorporated associations, other than:

  • Close investment-holding companies, defined at CTA10/S18N. See CTM03951
  • Non-resident companies chargeable to CT via a permanent establishment, unless a treaty non-discrimination article applies. See DT1954 {#}

Rates, limits and fractions

For a table of rates, limits and fractions for the small profits rate and marginal relief from financial year 2023 onwards see CTM03910.