The small profits rate of 19% is the most favourable rate in the UK corporation tax system for 2026/27. It applies automatically to companies with taxable profits at or below £50,000 for the accounting period. For many owner-managed companies, keeping taxable profit within this threshold, through director salary, company pension contributions and careful extraction planning, is the central corporation tax planning objective.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
The small profits rate is 19% and applies to taxable profits up to £50,000. A company right on £50,000 pays £9,500.
The £50,000 threshold is shared between associated companies - two associates get £25,000 each - so structure can pull you off the 19% rate sooner than expected.
The small profits rate of 19% applies to UK limited companies (and certain other entities) with taxable profits at or below £50,000 in the accounting period. There is no application required, it applies automatically if taxable profit falls within the threshold. Above £50,000, the marginal relief formula takes over, gradually increasing the effective rate toward the 25% main rate.
The £50,000 threshold is applied to the accounting period, not the tax year. For a company with a 12-month accounting period ending in March 2027, the £50,000 threshold applies to the full 12-month period. For shorter or longer periods, the threshold is pro-rated accordingly. A company with an 8-month period would have a threshold of £50,000 × 8/12 = approximately £33,333.
Associated companies divide the thresholds. A director who controls two limited companies must divide the £50,000 threshold equally between them, each company then has an effective small profits threshold of £25,000. This is a frequently overlooked trap for directors who set up multiple companies. The threshold division means a company that would otherwise qualify for the 19% rate may instead fall into the marginal relief band.
Taxable profit is calculated after deducting director salary, employer NI and other allowable expenses. A company with £65,000 in profit before salary that pays a £12,570 director salary (plus £1,135.50 employer NI) has taxable profit of £65,000 − £13,705.50 = £51,294.50. This is above the small profits threshold, just, and falls into the marginal relief band.
To bring taxable profit down to £50,000 from a starting position of £65,000, the director needs deductions of £15,000. A salary of £12,570 provides £13,705.50 of deductions (salary plus employer NI). An additional pension contribution of £1,294.50 brings taxable profit to exactly £50,000, and any contribution above that comes off profit taxed at the 19% small profits rate.
The corporation tax saving from dropping to the £50,000 threshold: at £51,294.50, corporation tax is £9,843.04 (marginal relief). At £50,000 exactly, it is £9,500 (19%). The saving from the £1,294.50 pension contribution is £343.04, the 26.5% marginal rate on that final slice of profit.
Company pension contributions are deducted from taxable profit and attract no employer or employee National Insurance. They are one of the most efficient tools for managing company profit levels, including controlling whether a company sits in the small profits band or marginal relief band.
The efficiency of a pension contribution depends on the profit level at the time it is made. A pension contribution that reduces taxable profit from £55,000 to £45,000 saves: first, the marginal relief savings on the £55,000−£50,000 slice (at 26.5% = £1,325 on £5,000); then, the small profits rate savings on the £50,000−£45,000 slice (at 19% = £950 on £5,000). Total saving on £10,000 pension: £2,275.
Compare this to the same £10,000 as additional director salary: employer NI of 15% × £10,000 = £1,500; income tax on the salary above personal allowance at 20% or 40%; employee NI at 8%. The pension route saves more corporation tax and avoids NI entirely. At this profit level, the pension is clearly the more efficient route for surplus cash extraction into future retirement savings.
Company profit (after other expenses): £80,000. Target: keep taxable profit in the small profits band. Step 1: Director salary £12,570, employer NI £1,135.50. Taxable profit after salary: £80,000 − £13,705.50 = £66,294.50. Still above £50,000, so marginal relief applies at an effective 20.8%. Corporation tax: £13,818.04.
Step 2: Add a company pension contribution of £17,000. Taxable profit: £66,294.50 − £17,000 = £49,294.50. Now below £50,000, so the 19% small profits rate applies. Corporation tax: 19% × £49,294.50 = £9,365.95. Corporation tax saving from the pension: £13,818.04 − £9,365.95 = £4,452.09, about 26.2% of the £17,000 contribution (26.5% on the slice above £50,000, 19% on the £705.50 below it).
After salary and pension, post-tax profit available for dividends: £49,294.50 − £9,365.95 = £39,928.55. Director takes all as dividends. Personal income: £12,570 + £39,928.55 = £52,498.55. Dividend tax: £500 allowance, £37,200 at 10.75% = £3,999, then £2,228.55 at 35.75% = £796.71. Total dividend tax: £4,795.71. Personal take-home: £47,702.84. Pension pot receives £17,000. Total combined tax: £9,365.95 + £1,135.50 + £4,795.71 = £15,297.16.
19%. It applies to companies with taxable profits at or below £50,000 per 12-month accounting period. Above £50,000, the marginal relief formula applies up to £250,000, above which the 25% main rate applies.
Not at the full £50,000 threshold. Associated companies divide the threshold equally. Two associated companies each have an effective threshold of £25,000. Three associated companies each have a threshold of approximately £16,667.
Yes. Company pension contributions are deducted from taxable profit before corporation tax. If they reduce taxable profit to at or below £50,000, the small profits rate of 19% applies to all taxable profit for that period.
3/200. This fraction is used in the HMRC formula: corporation tax = (profits × 25%) − (3/200 × (£250,000 − profits)). The fraction determines how quickly the effective rate rises from 19% toward 25% within the marginal relief band.
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.