Corporation Tax Marginal Relief Calculator 2026/27

How Corporation Tax Marginal Relief Works

Since 1 April 2023, the UK has had two Corporation Tax rates rather than one flat rate. Companies with taxable profits of £50,000 or less pay the small profits rate of 19%. Companies with profits of £250,000 or more pay the main rate of 25%. Without any smoothing, a company that earned £249,999 would pay dramatically more than a company that earned £50,001, even though their profits are similar at the band edges. Marginal Relief solves this by gradually tapering between the two rates across the £50,000–£250,000 band.

Mechanically, HMRC first charges the full 25% main rate on all your profits, then subtracts a relief figure. The relief is largest just above £50,000 (where it almost wipes out the gap to 19%) and shrinks to zero at £250,000. The standard fraction used in the calculation is 3/200 (which equals 0.015), and this fraction has been fixed for Financial Years 2023, 2024, 2025 and 2026.

The full HMRC formula is:

"Augmented profits" means your taxable profits plus any exempt distributions from non-group companies (franked investment income). For the vast majority of small and medium UK companies there is no such income, so augmented profits equal taxable profits and the middle term becomes 1. The formula then simplifies to the version this calculator uses by default:

The practical effect is that every extra pound of profit earned inside the £50,000–£250,000 band is taxed at a marginal rate of 26.5% — higher than the 25% main rate. This is a quirk that surprises many directors: profits in this band are the most expensive profits your company will ever earn, which is exactly why marginal-relief planning (pension contributions, timing of capital expenditure, salary vs dividend) matters most for companies in this range.

Worked Example: £100,000 Profit

Suppose your limited company has taxable profits of £100,000 for the year to 31 March 2027, with no associated companies and a full 12-month accounting period. Here is the step-by-step calculation:

1. Tax at the main rate: £100,000 × 25% = £25,000
2. Marginal Relief: (£250,000 − £100,000) × 3/200 = £150,000 × 0.015 = £2,250
3. Corporation Tax due: £25,000 − £2,250 = £22,750
4. Average effective rate: £22,750 ÷ £100,000 = 22.75%

So a £100,000-profit company pays £22,750 — an average effective rate of 22.75%, comfortably between the 19% and 25% headline rates. But notice the marginal picture: if that company earned one extra £1,000 (taking profit to £101,000), tax would rise to £25,250 − £2,235 = £23,015, an increase of £265 — a 26.5% marginal rate on that extra slice. This 26.5% figure holds true for every pound earned between £50,000 and £250,000.

When the 19%, 25% and Marginal Rates Apply

The 19% small profits rate applies in full when your taxable profits (after the associated-company and short-period adjustments below) are at or below the lower limit of £50,000. This is the rate most micro-companies and contractors pay. No marginal relief is needed because you are already at the lower rate.

The 25% main rate applies in full when profits reach or exceed the upper limit of £250,000. Larger companies pay this flat rate on all their profits — there is no 0–£50,000 slice taxed at 19% once you cross £250,000; the whole amount is at 25%. Again, no marginal relief applies.

Marginal relief applies only in the band between the two limits — profits above £50,000 but below £250,000. In this band your average rate climbs smoothly from just over 19% to just under 25%, while the rate on each additional pound is the 26.5% marginal rate. This is the band where forward planning has the biggest pay-off, because deferring or accelerating profit out of the band can move you onto the cheaper 19% rate or simply reduce exposure to the 26.5% margin.

A common and legitimate planning lever is making an employer pension contribution before the accounting period ends. Because the contribution is a deductible expense, it reduces taxable profit pound-for-pound, and any reduction made within the marginal band saves Corporation Tax at the full 26.5% marginal rate — one of the most tax-efficient outcomes available to an owner-managed company. Always take professional advice before acting.

Associated Companies and the Limits

The £50,000 and £250,000 limits are not per-director or per-trade — they are shared across associated companies. Two companies are associated if one controls the other, or if both are under the control of the same person or group of persons. Control usually means holding more than 50% of the share capital, voting rights, or rights to assets on a winding up.

When companies are associated, both limits are divided by the total number of companies (associated companies plus the company itself). The table below shows how quickly the limits shrink:

This is why a contractor who runs several small companies can find that profits which would have attracted the 19% rate in a single company instead fall into the marginal band. Dormant companies are generally ignored, as are certain passive holding companies, but the rules are detailed — use the calculator above to model your own associated-company position, then confirm with an accountant.

Short Accounting Periods

If your company's accounting period is shorter than 12 months — common in the first year of trading, or when a company changes its year-end — the £50,000 and £250,000 limits are proportionately reduced. HMRC pro-rates the limits by the number of days in the period divided by 365 (this calculator uses months ÷ 12 for simplicity).

For a 6-month period, the limits halve to £25,000 and £125,000. For a 9-month period, they become £37,500 and £187,500. This prevents a company from claiming a full year's worth of the lower-rate band in a part-year. Note that a Corporation Tax accounting period can never exceed 12 months — a longer set of accounts is split into two periods, each with its own (pro-rated where relevant) limits.

Where both adjustments apply — associated companies and a short period — the limits are reduced for associated companies first, then pro-rated for the period length. The calculator above applies both adjustments in that order.