UK Corporation Tax Marginal Relief 2026/27 Guide

What marginal relief actually is

Since 1 April 2023, UK corporation tax has had two headline rates:

• 19% — the small profits rate, on profits of £50,000 or less
• 25% — the main rate, on profits above £250,000

Marginal relief is the bridge between them. It exists purely to stop a cliff edge at £50,000. Without it, a company making £50,001 would suddenly pay 25% on every penny while its competitor on £50,000 paid 19% — obviously unfair. So for profits between £50,001 and £250,000, HMRC charges 25% on your profit and then hands back a reduction (the "relief") that gets smaller as profits grow. The result: your effective rate climbs gradually from 19% to 25% across the band.

These rates apply to the financial year starting 1 April 2026 (the 2026/27 year). One important detail: it's augmented profits that count against the £50,000 and £250,000 limits. For most owner-managed companies that's simply taxable profit, but if your company received dividends from a company it doesn't control (not a 51% subsidiary), those dividends get added in for limit purposes even though they aren't taxed. And watch out if you have associated companies — companies under the same control. The limits get divided by the number of associated companies plus one. One associated company means your band shrinks to £25,000–£125,000.

The formula, in plain English

HMRC's official calculation works like this:

1. Work out your tax at the 25% main rate: profit × 25% 2. Work out your marginal relief: 3/200 × (upper limit − augmented profits) × (taxable profits ÷ augmented profits) 3. Subtract step 2 from step 1 — that's your corporation tax bill

The 3/200 figure is the "standard fraction". It hasn't changed since the current system began in April 2023. For the vast majority of small companies — those with no dividend income from outside investments — augmented profits and taxable profits are the same number, so that last multiplication just becomes × 1 and the formula simplifies to:

Marginal relief = 3/200 × (£250,000 − profit)

Here's a quirk worth knowing: inside the band, every extra £1 of profit effectively costs you 26.5p in tax — more than either headline rate. That's the arithmetic of the taper. Your average rate never leaves the 19–25% range, but the marginal rate on the next pound you earn is 26.5%. It catches people out.

A worked example: £150,000 of profit

Meet Priya. She runs a marketing consultancy limited company, no associated companies, and for the year to 31 March 2027 her taxable profit is £150,000. No dividend income, so augmented profits are also £150,000.

• Step 1 — tax at the main rate: £150,000 × 25% = £37,500
• Step 2 — marginal relief: 3/200 × (£250,000 − £150,000) = 0.015 × £100,000 = £1,500
• Step 3 — corporation tax due: £37,500 − £1,500 = £36,000

Priya's effective rate is 24% (£36,000 ÷ £150,000). For context, if she'd made £49,000 she'd pay 19% (£9,310), and if she'd made £260,000 she'd pay 25% on the lot (£65,000) with no relief at all. The relief is automatic — it's claimed through your CT600 corporation tax return, not as a separate application.

Now let's check the 26.5% quirk in action. Say Priya lands an extra £10,000 of profit, taking her to £160,000:

• Tax at main rate: £160,000 × 25% = £40,000
• Marginal relief: 3/200 × (£250,000 − £160,000) = 0.015 × £90,000 = £1,350
• Bill: £40,000 − £1,350 = £38,650

The difference from before is £2,650 on £10,000 of extra profit — that's 26.5%. The taper gives back £150 less relief for every £10,000 you add.

If you'd rather not do this by hand (fair enough — fractions of 3/200 aren't dinner-table maths), the UK Corporation Tax Marginal Relief Calculator on Toolenix runs the same official formula instantly, including the associated-company adjustment that so many people forget.

How to work out your own figure step by step

Grab your company's taxable profit for the accounting period and follow these steps:

1. Confirm the period and rates. Your accounting period must end on or after 1 April 2023 for the current system to apply. For the year to 31 March 2027, use 19% and 25%.

2. Work out your augmented profits. Add any exempt dividend income from non-subsidiaries to your taxable profit. For most small companies, this is zero and augmented profits equal taxable profits.

3. Adjust the limits. Divide £50,000 and £250,000 by the number of associated companies plus one. No associated companies? The limits stay at £50,000 and £250,000. If your accounting period is shorter than 12 months, reduce the limits proportionally too.

4. Check which band you're in. At or below the lower limit, you pay 19% on everything. Above the upper limit, it's 25% on everything with no relief. In between, marginal relief applies.

5. Apply the formula. Tax at 25%, subtract 3/200 × (upper limit − augmented profits), adjusting by taxable profits ÷ augmented profits if the two profit figures differ.

6. File it on your CT600. The relief flows through your corporation tax return. The standard filing and payment deadline is 9 months and 1 day after your accounting period ends — for most small companies. If profits exceed £1.5 million (divided by associated companies plus one), quarterly instalments kick in, but that's outside the marginal relief band anyway.

Mistakes to avoid

Forgetting associated companies. This is the big one. HMRC sent letters to companies in 2026 about getting associated company counts wrong, and it directly affects your relief. If you control two companies, each company's band is £25,000–£125,000, not £50,000–£250,000. A company making £100,000 of profit would get far less relief than it expected — or none at all.

Using taxable profit when augmented profits matter. Received dividends from a minority stake in another company? They don't appear in your taxable profit, but they count against the limits. Enough of them can push you out of the relief band entirely while you believe you're safely inside it.

Assuming the effective rate is the marginal rate. Budgeting a new contract at "about 25%" because you're somewhere in the middle band understates the tax on that contract — it's 26.5% on the marginal pound (assuming no dividend complications). Over a £50,000 contract, that's a £750 difference versus budgeting at 25%.

Missing the short-period adjustment. If your accounting period is six months, your limits halve: £25,000 and £125,000. Companies in their first period, or those changing their year-end, regularly miss this.

Thinking close investment-holding companies qualify. They don't. Close investment-holding companies are excluded from the small profits rate and marginal relief, and pay the main rate regardless. Ring fence (oil and gas) profits have their own separate regime too.

Doing the maths wrong and overpaying. Because the relief is claimed on the return, an incorrect manual calculation can mean paying too much and never noticing. Running the UK Corporation Tax Marginal Relief Calculator as a second check takes seconds and costs nothing.