Pillar Guide · Updated July 2026
Corporation Tax Marginal Relief: A Complete UK Guide for 2026/27
Since April 2023, UK Corporation Tax has had two headline rates — 19% for small profits and 25% for large profits — with Marginal Relief smoothing the jump between them for companies with profits in the middle band. This guide explains how the £50,000 and £250,000 thresholds work, the marginal relief formula, and how associated companies affect the calculation.
The Two Headline Rates
Companies with taxable profits of £50,000 or less pay Corporation Tax at the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25% on the whole of their profit. Between these two figures, Marginal Relief gradually increases the effective rate from 19% up towards 25% as profits rise, rather than applying a sudden jump at either threshold.
The £50,000–£250,000 Marginal Band
A company with profits anywhere between £50,000 and £250,000 pays Corporation Tax at the full 25% main rate on its taxable profits, but can then deduct Marginal Relief from the resulting tax bill, which brings the effective average rate down somewhere between 19% and 25%, tapering smoothly as profits move through the band rather than jumping in steps.
The Marginal Relief Formula
Marginal Relief is calculated as: (Upper Limit − Augmented Profits) × (Taxable Profits ÷ Augmented Profits) × the Marginal Relief Fraction, which is set at 3/200 for the current rates. The result is subtracted from the Corporation Tax otherwise due at 25%, giving the actual amount payable. HMRC provides an online Marginal Relief calculator that performs this calculation automatically.
Worked Example
A company with £100,000 of taxable profits (and no associated companies, so the standard £50,000/£250,000 limits apply) would pay £25,000 of Corporation Tax at the 25% main rate before relief. Marginal Relief of (£250,000 − £100,000) × (£100,000 ÷ £100,000) × 3/200 = £2,250 is then deducted, giving a final Corporation Tax bill of £22,750 — an effective rate of 22.75%, part-way between the 19% and 25% headline rates as intended.
How Associated Companies Change the Thresholds
The £50,000 and £250,000 thresholds are divided by the number of 'associated companies' a company has (companies under common control, broadly including group companies and companies controlled by the same person or connected persons), plus one for the company itself. A company with one associated company therefore has its thresholds halved to £25,000 and £125,000, meaning it moves onto the main rate — and loses access to the small profits rate — at a much lower level of profit.
Augmented Profits
The thresholds are applied to 'augmented profits', which means taxable total profits plus exempt dividends received from companies that are not part of the same group, broadly designed to stop a company understating its true economic profits by routing income through dividends from unrelated companies to stay under the small profits threshold.
Short or Non-Standard Accounting Periods
The £50,000 and £250,000 thresholds are proportionately reduced for accounting periods shorter than 12 months, so a company with a six-month accounting period would use half the standard thresholds (£25,000 and £125,000, before any further reduction for associated companies) when working out its rate and any Marginal Relief.
How to Claim Marginal Relief
Marginal Relief is not something a company applies for separately; it is calculated and claimed automatically as part of the Corporation Tax computation submitted with the company's tax return, usually through accounting or tax return software that applies the formula based on the profits and number of associated companies entered.