Since April 2023, UK corporation tax has had two headline rates instead of one. Which rate applies to your company, how the transition between them works, and how salary and pension decisions interact with it, these are the questions that shape every other limited company planning decision.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
For 2026/27, UK corporation tax is 19% on company profits up to £50,000 and 25% on profits above £250,000. Between those thresholds, marginal relief applies and produces an effective rate that rises smoothly from 19% to 25%, with a marginal rate of about 26.5% on each extra pound inside the band.
The rate applies to taxable profit after deductions such as director salary, employer NI and pension contributions, so those choices can move a company between bands. Associated companies divide the thresholds, which can push a company onto the main rate sooner.
The effective rate climbs smoothly from 19% to 25% across the marginal-relief band. These figures are the tax on taxable profit itself, before any salary or pension deduction.
| £50,000 profit19.00% - small profits rate | £9,500 |
| £75,000 profit21.50% | £16,125 |
| £100,000 profit22.75% | £22,750 |
| £150,000 profit24.00% | £36,000 |
| £250,000 profit25.00% - main rate | £62,500 |
| Marginal rate inside the £50k-£250k band | ~26.5% |
That ~26.5% marginal rate is the quiet sting: each extra pound of profit between £50,000 and £250,000 costs more than a pound in the main-rate band would. It is also why a pension contribution or other deduction that pulls profit back through this band is worth more here than anywhere else.
The small profits rate of 19% applies to companies with taxable profits at or below £50,000 in an accounting period. The main rate of 25% applies above £250,000. These are not marginal rates on specific profit bands. They are flat rates applied to total taxable profit once the threshold is met.
A company with £45,000 in taxable profit pays £8,550 (19% × £45,000). A company with £260,000 pays £65,000 (25% × £260,000). There is no cliff-edge penalty for crossing £250,000. The main rate simply applies to all of the profit.
Taxable profit is profit after all allowable deductions: director salary, employer NI, pension contributions, professional fees and other business costs. These deductions can shift a company from one band to another. A company with £55,000 in profit that pays a £12,570 director salary plus £1,139 employer NI has taxable profit of approximately £41,291, comfortably inside the small profits band.
Between £50,000 and £250,000, neither rate applies cleanly. Marginal relief smooths the transition, producing an effective rate that rises gradually from 19% to 25%. The HMRC formula is: corporation tax = (profits × 25%) − (3/200 × (£250,000 − profits)).
At £100,000 profit: £100,000 × 25% = £25,000, minus 3/200 × £150,000 = £2,250. Corporation tax = £22,750. Effective rate: 22.75%. At £175,000: £175,000 × 25% = £43,750, minus 3/200 × £75,000 = £1,125. Corporation tax = £42,625. Effective rate: 24.4%.
The marginal rate within the band is approximately 26.5%. That is higher than either the 19% or 25% boundary rate. Every pound of profit reduced in this band through a pension contribution or other deduction saves approximately 26.5p in corporation tax. That makes deductions here more valuable than at either end.
Director salary reduces taxable profit before the corporation tax rate is applied. A £12,570 salary plus employer NI of approximately £1,139 reduces taxable profit by £13,709. For a company with £65,000 in profit before salary, that brings taxable profit to £51,291, still in the marginal band, but just. A modest pension contribution on top could push it below £50,000 entirely.
Company pension contributions are deducted from profit before corporation tax in the same way as salary. But they do not attract employer or employee NI. A £10,000 company pension contribution saves between £1,900 (at the 19% small profits rate) and £2,650 (at the 26.5% marginal rate), with no NI cost.
The combination of salary and pension decisions determines which rate band the company ends up in. Modelling the full picture before year-end is worthwhile. Pushing taxable profit from just above £50,000 to just below it produces a disproportionately large saving relative to the amount needed.
The £50,000 and £250,000 thresholds assume a standalone company. Where you control or are closely connected with other companies, including family companies where a relative controls another company, those thresholds are divided equally between all associated companies.
Two associated companies means your effective thresholds are £25,000 and £125,000. Three companies reduces them to approximately £16,667 and £83,333. Directors who set up multiple companies without thinking about this can find themselves paying the main rate at profit levels they expected to qualify for 19%.
HMRC's associated company rules are detailed. This calculator uses standard single-company thresholds and does not adjust for association. If you have related companies, verify your thresholds with an accountant before treating these outputs as a planning basis.
One of the most practical features of a limited company is that you do not have to extract all profit immediately. Retained profit has already paid corporation tax at 19–25%. If you draw it later, as dividends in a year when you are in a lower personal band, the combined tax across both years can be lower than extracting at higher-rate dividend rates today.
For a company paying 25% corporation tax, retention still defers personal income tax. For a company in the small profits band, it is even more efficient. The company pays 19% and you choose the timing. Sole traders do not have this option. They pay income tax on all profit in the year it arises.
The retained profit calculator on this site shows what stays in the company after salary, employer NI, pension and dividends. Adjusting the dividend figure lets you find the right balance between income now and flexibility later.
19% on taxable profits up to £50,000. Above £50,000, marginal relief applies up to £250,000, where the full 25% main rate takes over. The small profits rate requires a standalone company or one with very few associated companies.
No. Dividends come out of post-corporation-tax profit. The company pays corporation tax on its profits first. Dividends are then paid from what is left. They are not a deductible company expense.
The marginal relief formula phases out the relief as profit increases, and the rate of phase-out creates a marginal rate of approximately 26.5% on the last pound within the band. It is counterintuitive but mathematically consistent with the smooth transition from 19% to 25%.
Association is based on control. Broadly, companies where the same person or connected persons own more than 50% of the shares. This can include family members. If you are unsure, check with your accountant before relying on the standard thresholds here.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.