Home / Guides / Corporation Tax Rates 2026/27 — Marginal Relief Explained
Corporation tax is not a single flat rate and understanding where your company sits — at 19%, somewhere between, or at 25% — changes both the tax bill and the planning choices around salary, dividends and pension. The marginal relief band between £50,000 and £250,000 creates an effective rate that rises gradually, with a marginal rate at the top of the band that is actually higher than the main rate itself.
Last updated May 2026. Written by the LimitedCompanyTaxCalculator.co.uk editorial team and reviewed against current GOV.UK and HMRC guidance. Results are estimates for planning only and are not tax, accounting or financial advice.
The small profits rate of 19% applies to companies with taxable profits at or below £50,000. The main rate of 25% applies to companies with profits above £250,000. These are not graduated rates applied to bands of profit — they are flat rates applied to the total taxable profit once the threshold is met. A company with £49,000 in profit pays 19% on all of it. A company with £260,000 pays 25% on all of it.
Taxable profit is calculated after all allowable deductions: director salary, employer NI, company pension contributions, and other allowable business costs. For planning purposes, this means the rates apply to a lower figure than gross revenue — and decisions about salary and pension directly affect which rate band the company ends up in.
These thresholds have been in place since April 2023. Before that, a single 19% rate applied to all companies. The dual-rate system and the associated marginal relief band represent the most significant change to corporation tax in a generation for small business owners.
Between £50,000 and £250,000, neither the 19% nor the 25% rate applies cleanly. Instead, marginal relief produces an effective rate that rises from 19% to 25% as profit increases. The HMRC formula is: corporation tax = (profits × 25%) minus (3/200 × (£250,000 minus profits)).
For a company with £80,000 in taxable profit: £80,000 × 25% = £20,000, minus 3/200 × (£250,000 − £80,000) = 3/200 × £170,000 = £2,550. Corporation tax = £17,450. Effective rate: 21.8%. At £150,000: £150,000 × 25% = £37,500, minus 3/200 × £100,000 = £1,500. Corporation tax = £36,000. Effective rate: 24%. At £200,000: £200,000 × 25% = £50,000, minus 3/200 × £50,000 = £750. Corporation tax = £49,250. Effective rate: 24.6%.
The marginal rate on the last pound of profit within the band is approximately 26.5% — higher than either the 19% or 25% boundary rate. This matters for planning: any deduction that reduces profit within this band saves approximately 26.5p in corporation tax per pound. A company pension contribution or a director salary increase has a higher corporation tax saving rate in this range than at either boundary.
Marginal relief is most relevant for owner-managed companies with profits that sit regularly in the £50,000–£250,000 range. For a company with profits of £100,000, the choice of whether to take a salary of £9,100 or £12,570, or to make a £20,000 company pension contribution, all affect the corporation tax band and effective rate.
The best use of the formula is to model the full picture: start with profit before deductions, subtract the planned salary and employer NI, subtract any pension contribution, and apply the marginal relief formula to the result. This gives the actual corporation tax bill rather than an estimate based on a rounded rate.
For companies whose profits are consistently below £50,000, marginal relief is irrelevant — the small profits rate applies throughout. For companies above £250,000, the main rate applies and marginal relief does not reduce it further. The marginal relief calculation only benefits companies in the band, but for those companies it creates material planning opportunities.
The £50,000 and £250,000 thresholds apply to a single standalone company. Where a company is associated with one or more other companies — broadly, companies where the same person or connected persons have control — the thresholds are divided equally between the associated companies.
A director who controls two companies has effective thresholds of £25,000 and £125,000 for each company. Three associated companies reduce the thresholds to approximately £16,667 and £83,333. This means a company that would otherwise comfortably sit in the small profits band may face marginal relief rates — or even the main rate — once associated company rules are applied.
Association is determined by control and includes certain family relationships. The rules are detailed enough that if you operate through more than one company, or if your spouse or parent controls another company, the associated company position should be verified with an accountant. Using the standard thresholds when association rules apply will produce an incorrect — and usually understated — corporation tax bill.
For a standalone company, the effective rate at £80,000 is approximately 21.8%. The marginal relief formula gives: (£80,000 × 25%) − (3/200 × £170,000) = £20,000 − £2,550 = £17,450 in corporation tax.
The full 25% main rate applies to profits above £250,000. Between £50,000 and £250,000, marginal relief produces a graduated rate between 19% and 25%.
The marginal relief formula reduces the tax charge more steeply at lower profit levels within the band, creating a marginal rate of approximately 26.5% on the last pound of profit. This makes pension contributions and other deductions within the band more tax-efficient than at either boundary rate.
Association is based on control. If you or your connected persons (including close family) control other companies, those companies may be associated. Verify your position with an accountant rather than assuming standalone thresholds apply.
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.