Home / Corporation tax rates and marginal relief explained
UK corporation tax is not a single flat rate. For 2026/27, small companies with profits up to £50,000 pay 19%, while larger companies with profits above £250,000 pay 25%. Between those thresholds, a marginal relief mechanism produces an effective rate that rises gradually from 19% to 25%. Understanding where your company sits changes both the tax bill and the extraction strategy.
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 at or above £250,000. These thresholds apply to total taxable profit for the accounting period — not turnover.
For a company with taxable profit of exactly £50,000, the corporation tax bill is £9,500 (19% of £50,000). For a company with £250,000 profit, it is £62,500 (25% of £250,000). The difference in effective rate matters for planning, particularly around the £50,000 boundary where a small additional profit can shift the rate — and where marginal relief applies.
Taxable profit is profit after allowable deductions, including director salary, employer NI and company pension contributions. These reduce taxable profit before the corporation tax rate is applied.
Companies with profits between £50,000 and £250,000 are subject to marginal relief, which produces an effective rate between 19% and 25%. The formula is: corporation tax = (profits × 25%) − ((£250,000 − profits) × 3/200).
The 3/200 fraction is HMRC's marginal relief fraction. It means that for each £1 of profit above £50,000, the effective rate increases gradually rather than jumping from 19% to 25% all at once. For a company with £150,000 in profit, the effective rate is approximately 21.5%. For a company with £200,000 in profit, it is approximately 23%.
The marginal relief band also creates an unusually high marginal rate on profits between £50,000 and £250,000 — approximately 26.5% at the margin. This means that a director pension contribution that reduces profit within this band saves more in corporation tax per pound than at either the small profits or main rate levels.
Director salary is a company expense and is deducted from company profit before corporation tax. A salary of £12,570 reduces taxable company profit by £12,570 before the tax rate is applied.
However, if the salary exceeds £5,000 (the employer NI secondary threshold for 2026/27), employer NI at 15% applies to the excess. A salary of £12,570 creates employer NI of approximately £1,139 (15% × (£12,570 − £5,000)). This employer NI is itself a company expense and also reduces taxable profit.
The net effect: paying a director salary of £12,570 reduces company profit by approximately £13,709 (salary plus employer NI), saving £2,605 in corporation tax at the 19% small profits rate. Against this, the director pays income tax and employee NI on the salary personally. The benefit of the salary depends on the interplay between these layers.
Dividends are not an expense of the company. They are paid from post-corporation-tax profit and therefore do not reduce the corporation tax bill. This is a fundamental difference from salary.
Personal expenses of the director that are not wholly and exclusively for business purposes are not allowable. Client entertainment is generally not deductible. Fines, penalties and any amounts not incurred for business purposes are excluded.
Capital expenditure is not deducted as an expense in the usual way, though capital allowances — particularly the Annual Investment Allowance — can provide a deduction for qualifying equipment and asset purchases. The Annual Investment Allowance allows businesses to deduct the full cost of qualifying assets up to £1 million in the year of purchase.
An important caveat: where a company is associated with one or more other companies (broadly, companies under common control), the £50,000 and £250,000 thresholds are divided equally between them. A director with two associated companies effectively has thresholds of £25,000 and £125,000 rather than £50,000 and £250,000.
This can significantly change the effective corporation tax rate compared to a standalone company. The calculator does not currently apply associated company adjustments — it uses the standard thresholds. If you have associated companies, verify your position with an accountant.
The homepage calculator is the fastest way to turn this guidance into a concrete estimate for company tax, dividends and personal take-home.
19% on profits up to £50,000 (small profits rate). 25% on profits above £250,000 (main rate). Marginal relief applies between £50,000 and £250,000, producing an effective rate between 19% and 25%.
Marginal relief is a mechanism that prevents a sudden jump from 19% to 25% corporation tax as profit crosses £50,000. It produces an effective rate that rises gradually from 19% to 25% as profit moves from £50,000 to £250,000. The marginal rate within the band is approximately 26.5%.
No. Dividends are paid from post-corporation-tax profit. The company pays corporation tax on its profits first; dividends are then distributed from what remains.
Yes. Where a company is associated with other companies under common control, the £50,000 and £250,000 thresholds are divided equally between them. This calculator does not automatically apply associated company adjustments.