Corporation Tax on £120,000 Profit 2026/27: Marginal Relief Worked Example
A precise worked example of how Marginal Relief reduces the effective corporation tax rate on a company with exactly £120,000 profit in 2026/27.
Where £120,000 sits in the tapering band
For 2026/27, companies with profits up to £50,000 pay corporation tax at the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%. Profits in between — including £120,000 — qualify for Marginal Relief, which tapers the effective rate smoothly between these two figures rather than applying a hard cutoff at either threshold.
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Calculate Corporation Tax for UK limited companies for 2025/26.
Open Corporation Tax calculatorWorked example: £120,000 profit
Tax at the main rate on the full £120,000: £120,000 × 25% = £30,000.
Marginal Relief deduction: (£250,000 − £120,000) × (£120,000 ÷ £120,000) × 3/200 = £130,000 × 1 × 0.015 = £1,950.
Corporation tax payable: £30,000 − £1,950 = £28,050.
Effective tax rate: £28,050 ÷ £120,000 = 23.375%.
Why associated companies matter
If this same company had one associated company, the small profits limit would fall to £25,000 and the main rate threshold to £125,000 for each company. A £120,000 profit would then sit much closer to the main rate threshold within that reduced band, producing less Marginal Relief and a higher effective tax rate than the standalone-company example above — a common trap for group structures and multiple-director companies that are treated as associated.
Bottom line
A company with exactly £120,000 profit and no associated companies pays corporation tax of £28,050 in 2026/27 after Marginal Relief, an effective rate of roughly 23.4% — comfortably below the 25% main rate but well above the 19% small profits rate. Checking associated company status before relying on this figure is essential, since it materially changes where a company sits within the tapering band.
Sources
Frequently asked questions
What is the corporation tax rate on £120,000 profit?
£120,000 falls between the £50,000 small profits limit and the £250,000 main rate threshold, so it qualifies for Marginal Relief, which tapers the tax between the 19% small profits rate and the 25% main rate rather than applying either rate directly.
How is Marginal Relief calculated?
Marginal Relief is calculated as: (upper limit − actual profit) × (net profit chargeable at main rate ÷ actual profit) × the marginal relief fraction of 3/200, then deducted from the tax otherwise due at the main 25% rate.
What is the effective tax rate on £120,000 profit after Marginal Relief?
After Marginal Relief, the effective corporation tax rate on £120,000 profit works out at just over 21.9%, sitting between the 19% small profits rate and the 25% main rate, as intended by the tapering mechanism.
Do the £50,000 and £250,000 limits get divided between associated companies?
Yes — where a company has associated companies (broadly, companies under common control), the £50,000 and £250,000 limits are divided by the total number of associated companies, which can push a company into paying more tax at a lower profit level than these headline figures suggest.
Is Marginal Relief automatic or does a company need to claim it?
HMRC's own online corporation tax calculators and most accounting software apply Marginal Relief automatically once profit and associated company details are entered correctly, but it is worth checking that any manual calculation or third-party software has picked it up correctly.
Why does the tax system taper the rate instead of a hard cutoff?
Without tapering, a company earning just over £50,000 would suddenly pay a much higher average rate than one earning just under it. Marginal Relief smooths this transition so the average tax rate rises gradually as profit increases from £50,000 to £250,000.
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