How does Corporation Tax marginal relief work on £100,000 of profit?

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Marginal relief smooths the jump between the 19% small profits rate (for profits up to £50,000) and the 25% main rate (for profits above £250,000), applying to any company with taxable profit between these two thresholds for 2026/27. Without marginal relief, a company would face a large jump in effective tax rate the moment profits crossed £50,000; marginal relief instead gradually increases the effective rate across the whole £50,000 to £250,000 range. The calculation applies the 25% main rate to the whole profit, then deducts marginal relief calculated as: (upper limit − profit) × (profit ÷ profit) × the marginal relief fraction of 3/200. On £100,000 of profit: standard Corporation Tax at 25% would be £25,000. Marginal relief is (£250,000 − £100,000) × 3/200, which is £150,000 × 0.015, giving £2,250. Subtracting this relief from the standard 25% figure gives Corporation Tax of £22,750, an effective rate of 22.75% -- lower than the 25% main rate but higher than the 19% small profits rate, reflecting the company's position partway through the marginal relief band. As profit rises toward £250,000, the effective rate gradually increases toward the full 25%, while as profit falls toward £50,000, the effective rate falls toward 19%, creating a smooth transition rather than a sudden jump at either threshold.

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