How much Corporation Tax Marginal Relief applies to £120,000 profit in 2026/27?

Full answer

Marginal Relief smooths the transition between the 19% small profits rate and the 25% main rate for companies with profits between £50,000 and £250,000. The formula is Marginal Relief = (Upper Limit minus profit) multiplied by the marginal relief fraction of 3/200. On £120,000 profit: Marginal Relief = (£250,000 minus £120,000) times 3/200 = £130,000 times 0.015 = £1,950. Corporation Tax at the full 25% main rate on £120,000 is £30,000, and after deducting the £1,950 relief the payable amount is £28,050. That is an effective rate of 23.375% (£28,050 divided by £120,000), just under halfway between the 19% and 25% extremes -- fitting, since £120,000 is close to the midpoint of the £50,000-to-£250,000 marginal band. This is a common profit level for well-established small and medium businesses, and it illustrates why many owner-managed companies deliberately manage profit extraction -- for example through employer pension contributions, which are a deductible business expense -- to keep taxable profit lower in the band and preserve more of the relief. Associated companies still divide the £50,000 and £250,000 limits between them, so a group of two associated companies each with £120,000 profit would see their limits halved to £25,000 and £125,000, removing them from Marginal Relief eligibility entirely and pushing both onto the full 25% rate. Use the Corporation Tax calculator to model your own structure.

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