| Factor | Small Profits Rate | Main Rate |
|---|---|---|
| Rate | 19% | 25% |
| Profits threshold (12 months) | Up to GBP 50,000 | Above GBP 250,000 |
| Marginal relief band | N/A (below band) | GBP 50,001 to GBP 250,000 (26.5% marginal) |
| Associated company impact | Threshold divided by number of associated companies | Upper limit also divided |
| Close investment holding companies | Not eligible -- 25% applies | Always 25% |
| Tax on GBP 50,000 profits | GBP 9,500 | N/A (below main rate threshold) |
| Tax on GBP 250,000 profits | N/A (above SPR threshold) | GBP 62,500 |
Since April 2023 the UK has had a two-rate corporation tax system for the first time in decades. Companies with small profits pay 19%, those with larger profits pay 25%, and those in the middle benefit from marginal relief. For 2026 the rates remain 19% and 25%, making rate planning a critical consideration for companies with profits near the thresholds.
The small profits rate of 19% applies where a company's augmented profits for a 12-month accounting period do not exceed GBP 50,000. Augmented profits are taxable profits plus dividends received from companies that are not part of the same group -- most trading companies simply use their taxable profit figure.
The main rate of 25% applies where augmented profits exceed GBP 250,000. For a company with GBP 300,000 of profits, the corporation tax bill is a straightforward GBP 75,000 (25%). There is no band-splitting at the top -- once over GBP 250,000, the full 25% applies to all profits.
Between GBP 50,000 and GBP 250,000 lies the marginal relief band. Here, the company notionally pays 25% but receives a credit (marginal relief) that tapers the effective rate down towards 19% the closer profits are to GBP 50,000. The marginal relief formula produces an effective marginal rate of 26.5% on each additional pound within the band -- higher than the headline 25% main rate, which is a deliberate structural feature.
The most significant complication introduced alongside the two-rate system is the associated companies rule. Where two or more companies are under common control -- typically the same individual or individuals own or control them -- the GBP 50,000 and GBP 250,000 thresholds must be divided by the total number of associated companies.
An entrepreneur who owns two limited companies (Company A trading, Company B property) sees both thresholds halved: the small profits threshold becomes GBP 25,000 and the upper limit becomes GBP 125,000. If Company A makes GBP 45,000 profit, it now falls in the marginal relief band rather than the small profits rate band, and pays an effective rate higher than 19%.
With three associated companies the thresholds drop to GBP 16,667 and GBP 83,333 respectively. Many business owners with property companies, holding companies or multiple trading entities have found that the associated companies rule significantly accelerates the point at which they move out of the 19% small profits rate -- even if any individual company has modest profits.
For a single company with profits close to GBP 50,000, legitimate planning can preserve the 19% rate. Common strategies include making additional pension contributions (the company pays into an employee or director pension, reducing taxable profits), timing capital expenditure to use the Annual Investment Allowance (GBP 1 million in 2026), accelerating other deductible expenses, and paying bonuses to owner-directors before the year end.
The question of whether to plan profits below GBP 50,000 must account for the extraction method. If the director reduces company profits by paying themselves a bonus, the bonus is subject to income tax (20%/40%) and NI -- so the overall tax cost must be compared against the corporation tax saving. For basic-rate taxpayers, paying a bonus to reduce profits from GBP 55,000 to GBP 50,000 may not always save overall tax, since the bonus itself triggers income tax at 20% plus NI, while the corporation tax reduction is only from 26.5% marginal rate to 19% on the additional GBP 5,000.
The most counterintuitive aspect of the 2026 corporation tax regime is that companies with profits between GBP 50,001 and GBP 249,999 face a 26.5% effective marginal rate on each additional pound of profit -- higher than the 25% main rate that applies once profits exceed GBP 250,000. A company that earns GBP 249,000 and then wins a GBP 2,000 contract faces 26.5% on the GBP 1,000 in the marginal band and 25% on the pound that takes it over GBP 250,000. Companies that reliably generate profits above GBP 250,000 are paradoxically in a slightly better marginal position than those in the taper zone.
This means the marginal band requires proactive planning. If company profits are projected to land between GBP 200,000 and GBP 250,000 -- where the marginal rate is highest proportionally -- investment in plant, equipment, R&D (which attracts enhanced deductions) or pension contributions can both reduce tax and provide genuine economic benefit.
Close Investment Holding Companies (CIHCs) -- broadly, close companies whose main activities are making investments rather than trading -- cannot access the small profits rate and always pay 25%. This catches many property investment companies and certain holding structures. A company that was formerly trading but has become primarily investment-focused should take advice on whether it has become a CIHC, as the tax cost of misclassification is significant.
