Home / Corporation tax marginal relief: a plain English explanation
Marginal relief prevents the corporation tax rate from jumping sharply from 19% to 25% as profit crosses the £50,000 threshold. Instead, companies with profits between £50,000 and £250,000 pay an effective rate that rises gradually from 19% to 25% through a specific relief formula. Understanding this matters because the marginal rate within the band — approximately 26.5% — is higher than either boundary rate.
For the purposes of corporation tax in 2026/27, company taxable profits fall into three regions. Profits up to £50,000: small profits rate of 19% applies to the entire profit. Profits above £250,000: main rate of 25% applies to the entire profit. Profits between £50,000 and £250,000: marginal relief applies, producing an effective rate between 19% and 25%.
The key point that surprises most people is that marginal relief does not mean paying 19% on the first £50,000 and 25% on the rest. It is a single effective rate applied to total profit that sits between the two boundary rates. The formula produces a smooth transition rather than a stepped one.
All three of these thresholds apply to accounting periods of twelve months. For shorter or longer accounting periods, the thresholds are apportioned accordingly.
The corporation tax calculation in the marginal relief band uses the following formula: Corporation tax = (Profits × 25%) − (Marginal Relief Fraction × (£250,000 − Profits)).
The Marginal Relief Fraction is currently 3/200. Working through an example: a company with £100,000 in taxable profit. Step one: £100,000 × 25% = £25,000. Step two: 3/200 × (£250,000 − £100,000) = 3/200 × £150,000 = £2,250. Corporation tax = £25,000 − £2,250 = £22,750. Effective rate: 22.75%.
Another example: £175,000 in profit. Step one: £175,000 × 25% = £43,750. Step two: 3/200 × (£250,000 − £175,000) = 3/200 × £75,000 = £1,125. Corporation tax = £43,750 − £1,125 = £42,625. Effective rate: 24.4%.
Within the marginal relief band, the marginal rate — the rate applied to the last pound of profit — is approximately 26.5%. This is higher than the 25% main rate that applies above £250,000.
This creates a planning opportunity: reducing profit within the band (by making a director pension contribution, for example) saves approximately 26.5p in corporation tax per pound reduced. The same pension contribution above the £250,000 threshold would save 25p, and below the £50,000 threshold it would save 19p.
Directors with profits regularly in the £50,000–£250,000 band should model the effect of pension contributions and other deductions carefully. The potential corporation tax saving per pound is higher in this range than at either boundary.
This calculator applies the standard £50,000 and £250,000 thresholds for a single standalone company. Where a company is associated with one or more other companies — broadly, companies under common control, including by close relationships — the thresholds are divided equally between them.
A director with two associated companies has effective thresholds of £25,000 and £125,000 rather than £50,000 and £250,000. A director with three associated companies has thresholds of approximately £16,667 and £83,333. This can dramatically change the effective corporation tax rate compared to a standalone company.
HMRC's guidance on associated companies is specific. If you control or are closely connected with other companies, check with an accountant whether association rules apply to your situation before relying on the thresholds shown in this calculator.
The corporation tax figure shown in this calculator applies the marginal relief formula automatically where profit falls between £50,000 and £250,000. You can see the effective rate by observing how the corporation tax changes as you adjust company profit.
To explore the impact of director pension contributions within the marginal relief band, enter a pension figure and observe how the corporation tax charge falls. The rate of reduction per pound contributed will be approximately 26.5% in this range — faster than at either boundary.
If you have associated companies, adjust the profit figure to reflect your share of the relevant thresholds, or discuss the position with an accountant who can apply the correct associated company rules to your specific structure.
The homepage calculator is the fastest way to turn this guidance into a concrete estimate for company tax, dividends and personal take-home.
Approximately 22.75% for a standalone company. Using the marginal relief formula: (£100,000 × 25%) − (3/200 × £150,000) = £25,000 − £2,250 = £22,750.
No. Marginal relief is a single effective rate applied to all profits in the band. The formula produces a rate between 19% and 25% depending on profit level, not a stepped tax at two rates.
Approximately 26.5% — the rate applied to the last pound of profit within the £50,000–£250,000 band. This is higher than either boundary rate and is why pension contributions are particularly efficient for companies in this range.
Associated companies divide the thresholds equally. Two associated companies share thresholds of £25,000 and £125,000. This can significantly raise the effective corporation tax rate compared to a single standalone company.