Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
UK corporation tax for 2026/27 has three effective rates: 19% small profits rate up to £50,000, 25% main rate above £250,000, and marginal relief between the two. This guide explains how each applies with worked examples.
For the 2026/27 tax year, UK limited companies face one of three effective corporation tax positions depending on their taxable profits. Companies with profits at or below £50,000 pay the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%. Companies with profits between £50,000 and £250,000 pay a blended effective rate through marginal relief, which sits between 19% and 25%.
The taxable profit figure for corporation tax is company profit after deducting director salary, employer National Insurance, employer pension contributions and any other allowable business expenses. Dividends paid to shareholders are not a company expense and do not reduce taxable profit before corporation tax.
These thresholds apply per company. If you have associated companies — broadly, companies under common control — the £50,000 and £250,000 thresholds are divided by the number of associated companies. A director running two associated companies would each have a £25,000 small profits threshold and a £125,000 main rate threshold, making the main rate apply at a lower profit level than for a standalone company.
Marginal relief applies to companies with taxable profits between £50,000 and £250,000. Rather than a sudden jump from 19% to 25%, the effective rate rises gradually across that band. The formula used by HMRC is: tax due = (profits × 25%) − (3/200 × (£250,000 − profits)).
For a company with £100,000 of taxable profit, the calculation works out as: (£100,000 × 25%) = £25,000, minus (3/200 × (£250,000 − £100,000)) = 3/200 × £150,000 = £2,250. Corporation tax due = £25,000 − £2,250 = £22,750. The effective rate is therefore £22,750 / £100,000 = 22.75%.
For a company with £200,000 of taxable profit: (£200,000 × 25%) = £50,000, minus (3/200 × £50,000) = £750. Tax = £49,250. Effective rate 24.625%. The effective rate approaches 25% as profits near the £250,000 upper limit and equals exactly 19% at the £50,000 lower limit.
The practical implication is that every additional £1 of profit between £50,000 and £250,000 is taxed at 26.5p, because moving up the band applies the 25% main rate to the whole profit and reduces the marginal relief. This is why profit levels near the lower threshold are often targeted by directors: a company sitting just above £50,000 has a marginal tax rate on those additional pounds that is higher than either the stated small profits or main rates.
At £40,000 profit: small profits rate applies, 19% of £40,000 = £7,600 corporation tax.
At £75,000 profit: marginal relief applies. (£75,000 × 25%) = £18,750, minus (3/200 × £175,000) = £2,625. Tax = £16,125. Effective rate 21.5%.
At £150,000 profit: (£150,000 × 25%) = £37,500, minus (3/200 × £100,000) = £1,500. Tax = £36,000. Effective rate 24%.
At £300,000 profit: main rate applies, 25% of £300,000 = £75,000 corporation tax. No marginal relief because profits exceed the upper limit.
These are simplifications. The real taxable profit depends on the exact salary, employer NI, pension contributions and other deductions claimed. Use the calculator on this site to model your specific position.
Director salary is deductible from company profit before corporation tax. Employer National Insurance (15% on salary above £5,000) is also a deductible company expense. Company pension contributions are deductible, within the annual allowance. These deductions reduce the taxable profit figure, which is why extraction strategy affects the corporation tax bill.
Dividends paid to shareholders are not deductible. They come from post-corporation-tax profit. This is why the combined effective rate on extraction through salary and dividends differs from simply taking all profit as salary: dividends are effectively taxed twice — once through corporation tax and again through dividend tax in the shareholder's hands.
Capital allowances and other reliefs can reduce taxable profit further. The full expensing rule, which allows 100% deduction in the year of purchase for most plant and machinery, applies in 2026/27 for qualifying main pool assets.
For companies sitting in the marginal relief band, salary and pension contributions are particularly valuable as planning tools. Each pound of director salary above the secondary threshold (£5,000) creates employer NI at 15%, but also reduces taxable profit — and that profit reduction is taxed at the marginal 26.5% effective rate. The combined effect can make salary increases worth more in tax saved than their gross cost.
Company pension contributions are especially efficient in the marginal relief band because they reduce taxable profit without creating NI, and the contribution itself is an asset (it builds your pension pot). For a company at £150,000 profit, a £20,000 pension contribution saves 24% in corporation tax (£4,800) plus potentially reduces the effective marginal rate on remaining profits.
For companies well below £50,000 profit, the small profits rate of 19% applies and the planning calculus is different. The salary vs dividend decision is more about personal tax efficiency than reducing corporation tax at a 26.5% marginal rate.
19% on profits up to £50,000 (small profits rate), 25% on profits above £250,000 (main rate), and a blended effective rate through marginal relief for profits between £50,000 and £250,000.
Use the formula: tax = (profits × 25%) − (3/200 × (£250,000 − profits)). For example, at £100,000 profit: (£100,000 × 25%) − (3/200 × £150,000) = £25,000 − £2,250 = £22,750.
Yes. Director salary and employer NI are deductible company expenses, so they reduce taxable profit before corporation tax is calculated.
Associated companies under common control share the £50,000 and £250,000 corporation tax thresholds. With two associated companies, each has a £25,000 small profits threshold and £125,000 main rate threshold.