Corporation Tax Marginal Relief Between GBP 50k and GBP 250k 2026/27

Three rates, not one

Many directors assume corporation tax is a single flat rate. For 2026/27 there are effectively three zones:

• Profits up to GBP 50,000 are taxed at the small profits rate of 19%.
• Profits at or above GBP 250,000 are taxed at the main rate of 25%.
• Profits between GBP 50,000 and GBP 250,000 are taxed at the main rate but reduced by marginal relief.

The result is that the slice of profit sitting inside the marginal band carries an effective rate of 26.5%, higher than the headline 25%. Understanding this avoids nasty surprises when your company crosses GBP 50,000.

UK 2026/27 rates at a glance

The table below summarises the three rate zones, the applicable thresholds, and the effective rate on each band of profit. All figures assume a single company with no associated companies and a full 12-month accounting period.

Key statutory figures for 2026/27:

• Small profits rate: 19%
• Main rate: 25%
• Lower profits limit: GBP 50,000
• Upper profits limit: GBP 250,000
• Marginal relief fraction: 3/200 (equivalent to 1.5%)
• Annual Investment Allowance: GBP 1,000,000

These figures are set by the Finance (No. 2) Act 2023 and confirmed in subsequent Finance Acts. Always verify the current rates on gov.uk before filing your return.

How marginal relief is calculated

The mechanism is to first charge the full 25% main rate on all your profits, then subtract a relief. The relief equals the marginal relief fraction of 3/200 multiplied by the amount your profits fall short of the GBP 250,000 upper limit.

In plain terms:

• Tax at main rate = profits x 25%
• Marginal relief = (250,000 - profits) x 3/200
• Corporation tax due = tax at main rate - marginal relief

The 3/200 fraction converts to 0.015 (or 1.5%). Multiplied by the shortfall, it produces the relief figure. As profits rise, the shortfall shrinks, so the relief shrinks, and the net effective rate climbs towards 25%. At exactly GBP 250,000, relief is zero and the company pays the full 25% main rate.

Worked example

Example 1: GBP 100,000 profit

Say your company makes GBP 100,000 of taxable profit in 2026/27 with no associated companies.

• Tax at the main rate: GBP 100,000 x 25% = GBP 25,000.
• Marginal relief: (GBP 250,000 - GBP 100,000) x 3/200 = GBP 150,000 x 0.015 = GBP 2,250.
• Corporation tax due: GBP 25,000 - GBP 2,250 = GBP 22,750.

That is an overall effective rate of 22.75% on the full GBP 100,000. The first GBP 50,000 slice effectively bears 19% (GBP 9,500) and the next GBP 50,000 in the marginal band carries the remaining GBP 13,250, which works out at 26.5%.

Example 2: GBP 175,000 profit

A company with GBP 175,000 of taxable profit sits deeper in the marginal band.

• Tax at the main rate: GBP 175,000 x 25% = GBP 43,750.
• Marginal relief: (GBP 250,000 - GBP 175,000) x 3/200 = GBP 75,000 x 0.015 = GBP 1,125.
• Corporation tax due: GBP 43,750 - GBP 1,125 = GBP 42,625.
• Overall effective rate: GBP 42,625 / GBP 175,000 = 24.36%.

Notice that the overall effective rate has risen from 22.75% in Example 1 to 24.36% here, because a larger proportion of profit now sits in the high-rate marginal band.

Example 3: two associated companies, GBP 80,000 profit

If your company has one associated company, the limits are halved. The lower limit becomes GBP 25,000 and the upper limit becomes GBP 125,000.

• Your GBP 80,000 profit exceeds the adjusted lower limit of GBP 25,000 and is below the adjusted upper limit of GBP 125,000, so it falls in the marginal band.
• Tax at the main rate: GBP 80,000 x 25% = GBP 20,000.
• Marginal relief: (GBP 125,000 - GBP 80,000) x 3/200 = GBP 45,000 x 0.015 = GBP 675.
• Corporation tax due: GBP 20,000 - GBP 675 = GBP 19,325.
• Overall effective rate: GBP 19,325 / GBP 80,000 = 24.16%.

Without the associated company, GBP 80,000 would fall below the GBP 50,000 lower limit and be taxed at a flat 19% (GBP 15,200). The associated-company rule therefore adds GBP 4,125 to the tax bill in this example, a meaningful difference that underlines why company structure matters.

You can model all three scenarios interactively with the corporation tax marginal relief calculator on CalcHub, which applies the 3/200 fraction and adjusts for associated companies automatically.

Why 26.5% matters for planning

The 26.5% marginal rate is the number that should drive your decisions, not the 25% headline. If you are weighing whether to bring forward a deductible cost or make an extra employer pension contribution, every GBP 1 of profit you keep inside that band is taxed at 26.5%, so a GBP 1 deduction saves 26.5p.

Points to keep in mind:

• The GBP 50,000 and GBP 250,000 limits are reduced if you have associated companies.
• The limits are also pro-rated for accounting periods shorter than 12 months.
• Investment companies that are close companies do not get marginal relief.
• Employer pension contributions, equipment via the Annual Investment Allowance and salary are all deductible against this 26.5% slice.

A director considering paying a GBP 15,000 employer pension contribution from profits of GBP 120,000 saves GBP 3,975 in corporation tax (GBP 15,000 x 26.5%), pushing the remaining profit to GBP 105,000 and reducing the marginal relief shortfall slightly as well. The contribution also reduces profits, which could bring the company closer to the GBP 50,000 lower limit where the more favourable 19% rate applies.

Common mistakes to avoid

Understanding the marginal relief mechanism is only half the battle. The following errors appear repeatedly in owner-managed company tax returns and can result in underpayment, overpayment, or an incorrect CT600.

Confusing taxable profits with augmented profits. HMRC uses augmented profits — taxable profits plus exempt dividends from non-group companies — to determine which rate band applies. If your company received even a modest dividend from a portfolio investment, your augmented profits may push you into the marginal band while your taxable profits remain below GBP 50,000.

Forgetting associated companies. Directors who own shares in multiple companies, even dormant ones, must count those companies as associated. Failing to divide the limits by the number of associated companies leads to understated tax at the wrong rate. Check HMRC's detailed guidance on what counts as an associated company before finalising your return.

Applying the wrong upper limit after a short accounting period. If your accounting period is nine months, your upper limit is not GBP 250,000 — it is GBP 187,500. Applying the unadjusted limit results in too much marginal relief being claimed.

Planning against the 25% headline rather than 26.5%. Every pound of additional profit inside the marginal band costs 26.5p in corporation tax, not 25p. Pension planning, bonus timing, and capital expenditure decisions should all use 26.5% as the relevant tax saving rate.

Missing the payment deadline. A company in the marginal band with a 31 March 2027 year-end must pay its corporation tax by 1 January 2028. HMRC charges interest on late payments, currently at the official rate plus 2.5 percentage points, which can materially increase the final bill.

Assuming the rules are permanent. Marginal relief thresholds, the fraction, and the rate structure can all be changed by future Budgets. The GBP 50,000 and GBP 250,000 limits have not been indexed to inflation, so over time more companies will drift into the marginal band. Keep an eye on each Autumn Statement for any changes.

Not using HMRC's own calculator. HMRC provides an official marginal relief calculator at tax.service.gov.uk/marginal-relief-calculator. It handles associated companies, short periods, and augmented profits automatically. Using it as a cross-check against your accountant's figures takes only a few minutes and can prevent costly mistakes.

Comparing the three profit levels: a summary table

The table below shows the corporation tax bill, marginal relief, and overall effective rate for several profit levels, assuming a single company with no associated companies and a full 12-month 2026/27 accounting period.

Notice how the overall effective rate climbs steadily as profits increase within the band. At GBP 50,000 the effective rate equals the 19% small profits rate precisely, because the maximum marginal relief of GBP 3,000 (GBP 200,000 x 3/200) exactly converts the 25% charge to 19%. At GBP 250,000 marginal relief disappears entirely and the main rate of 25% applies in full.

Interaction with research and development relief

From April 2024 the two R&D reliefs — the SME scheme and the Research and Development Expenditure Credit (RDEC) — were merged into a single scheme for most companies, with an enhanced rate for loss-making R&D-intensive SMEs. For companies in the marginal band, an RDEC credit reduces your corporation tax liability after marginal relief has been applied. It is important to model both marginal relief and RDEC in the correct sequence to arrive at the net tax payable. HMRC's CT600 supplementary pages provide the correct order of set-off, and the corporation tax calculator on CalcHub can help you estimate the combined impact before your accountant finalises the figures.

The bottom line

For 2026/27, profits in the GBP 50,000 to GBP 250,000 band are taxed at an effective 26.5% on each marginal pound, the steepest part of the corporation tax curve. A company on GBP 100,000 of profit pays GBP 22,750 after marginal relief of GBP 2,250 calculated with the 3/200 fraction. A company with two associated companies and GBP 80,000 of profit faces a much tighter band and a substantially higher bill than it would as a standalone entity.

The key actions are straightforward: establish whether you have associated companies, check whether a short accounting period requires proportionate limits, use augmented profits rather than taxable profits for rate banding, and plan deductions against 26.5% rather than 25%. Confirm all figures on gov.uk before filing, and use the HMRC marginal relief calculator as a final cross-check.