Marginal relief is the mechanism that prevents UK corporation tax from jumping sharply from 19% to 25% as profits cross the £50,000 threshold. For companies with taxable profits between £50,000 and £250,000 in 2026/27, marginal relief produces an effective rate that rises gradually from 19% to 25%. Understanding the formula, and the 26.5% marginal rate within the band, is essential for any director with profits in this range.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Marginal relief reduces corporation tax for profits between £50,000 and £250,000. Take 25% of the profit and subtract 3/200 of the shortfall below £250,000.
On £100,000 that is £25,000 minus £2,250, so £22,750 - a 22.75% effective rate, with a marginal rate of roughly 26.5% on each pound in the band.
Between £50,000 and £250,000, HMRC works out the main-rate tax and then subtracts marginal relief. The formula is: tax = (profit x 25%) - (3/200 x (£250,000 - profit)).
| Profit x 25%£100,000 x 25% | £25,000 |
| Less marginal relief3/200 x (£250,000 - £100,000) = 3/200 x £150,000 | -£2,250 |
| Corporation tax due | £22,750 (22.75%) |
So a company on £100,000 pays £22,750, not the flat £25,000 the headline main rate implies. The relief tapers away as profit approaches £250,000, which is exactly why the rate on each extra pound in the band works out at roughly 26.5%.
HMRC's marginal relief formula is: Corporation tax = (Taxable profits × 25%) − (Marginal Relief Fraction × (Upper limit − Taxable profits)). For 2026/27: Upper limit = £250,000. Marginal Relief Fraction = 3/200. This gives: Corporation tax = (profits × 25%) − (3/200 × (£250,000 − profits)).
Let's apply it to several profit levels. At £60,000: (£60,000 × 25%) − (3/200 × £190,000) = £15,000 − £2,850 = £12,150. Effective rate: 20.25%. At £100,000: (£100,000 × 25%) − (3/200 × £150,000) = £25,000 − £2,250 = £22,750. Effective rate: 22.75%. At £175,000: (£175,000 × 25%) − (3/200 × £75,000) = £43,750 − £1,125 = £42,625. Effective rate: 24.36%. At £249,999: approximately £62,498. Effective rate: 25.0% (asymptotically approaching the main rate).
These rates are smooth and continuous, there is no cliff-edge between any two profit levels within the band. The transition from 19% to 25% is gradual, designed to eliminate the distortive effect of a sudden rate change at a single threshold.
The most counterintuitive feature of marginal relief is that the marginal rate within the band is approximately 26.5%, higher than the 25% main rate that applies above £250,000. The relief is phased out gradually as profit increases, and that phasing-out creates a marginal rate that exceeds the boundary rate.
The 26.5% marginal rate comes from: 25% plus the effect of the 3/200 fraction applied to the reduction in relief. For every £1 of profit within the band, the effective tax charge increases by approximately 26.5p.
This has a direct planning implication. Reducing profit within the band saves approximately 26.5p per pound, more than the 25p saved above the band or the 19p saved below it. Pension contributions, timing of expenses and year-end salary decisions all save more corporation tax per pound when the company sits in the marginal band.
Company pension contributions are the most powerful lever. They reduce taxable profit with no NI, saving 26.5p per pound in the marginal band. A £20,000 pension contribution for a director with profits at £120,000 saves approximately £5,300 in corporation tax with no NI cost. The same £20,000 as salary would incur £3,000 in employer NI, partially offsetting that saving.
Salary planning: increasing director salary from £5,000 to £12,570 in the marginal band is more valuable than at the small profits rate. The additional £7,570 salary plus £1,135.50 employer NI = £8,705.50 deduction, saving approximately 26.5% × £8,705.50 = £2,307 in corporation tax. The employer NI cost is £1,135.50 (nil if the Employment Allowance applies). Net saving: about £1,171 (or £2,307 with the allowance), confirming £12,570 as the optimum in the marginal band.
Timing of expenses: bringing a significant planned purchase into a year when profits are in the marginal band saves more corporation tax than if it falls in a year when profits are outside the band. Worth considering for capital equipment, professional fees or pre-paid subscriptions.
The corporation tax calculator on this site applies the HMRC marginal relief formula automatically when taxable profit falls between £50,000 and £250,000. Enter company profit and director salary to see the corporation tax figure update in real time as you adjust each variable.
To use it for planning: enter your expected company profit before salary. Then try different salary and pension combinations. Watch the corporation tax change. The most efficient combination minimises total tax across all layers, corporation tax plus employer NI plus personal tax, not just one layer.
The calculator uses the standard standalone thresholds of £50,000 and £250,000. If you have associated companies, your thresholds are lower. Adjust the profit input to reflect your adjusted threshold for a rough estimate, or speak to your accountant for the precise position.
The Marginal Relief Fraction is 3/200. The marginal rate on the last pound of profit within the band is approximately 26.5%, higher than the 25% main rate. The effective rate rises from approximately 19% at £50,000 to 25% at £250,000.
Use: Corporation tax = (Profits × 25%) − (3/200 × (£250,000 − Profits)). At £150,000 profit: (£150,000 × 25%) − (3/200 × £100,000) = £37,500 − £1,500 = £36,000. Effective rate: 24%.
The thresholds are divided equally between associated companies. Two associated companies each have upper limits of £125,000 and lower limits of £25,000. The formula is the same, applied to the adjusted thresholds.
At £100,000 taxable profit, the marginal relief rate produces a tax bill of £22,750 versus £19,000 at 19%. The difference is £3,750. Planning to keep taxable profit below £50,000 through salary and pension saves that difference, but requires extracting less now or contributing more to a pension.
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.