Marginal Relief bridges the gap between the 19% small profits rate and the 25% main rate of Corporation Tax. It applies when a company’s profits fall between £50,000 and £250,000 for financial years 2025 and 2026. HMRC starts with tax at 25%, then deducts relief worked out using the standard fraction of 3/200. The practical effect is an effective rate of 26.5% on the slice of profit inside that band. Associated companies and accounting periods shorter than a full year both reduce the two limits.

If your company earns more than £50,000 but not more than £250,000, you do not simply pay a flat 19% or 25%. Instead, Marginal Relief tapers your bill so that tax rises gradually as profits grow. This guide explains how the taper works, the maths behind the 3/200 fraction, why the true marginal rate is 26.5%, and how associated companies and short periods change the picture. For the wider context, see our overview of how Corporation Tax works.

What is Corporation Tax Marginal Relief?

Since 1 April 2023 the UK has run two Corporation Tax rates. Companies with profits of £50,000 or less pay the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25% on all of their profits. Marginal Relief exists for the range in between. Without it, a company nudging just over £50,000 would suddenly jump onto the 25% rate, which would be a harsh cliff edge. Marginal Relief smooths that step so the effective rate climbs steadily from 19% towards 25% as profits move through the band.

What are the profit limits for 2025 and 2026?

For financial years 2025 and 2026 the figures are unchanged from 2023. The lower limit is £50,000, the upper limit is £250,000, and the standard fraction used in the relief calculation is 3/200. These apply to a company with no associated companies and a full 12 month accounting period. The term the calculation uses is “augmented profits”, which means your taxable total profits plus certain exempt distributions received from companies that are not part of your group. For most owner managed companies with no such income, augmented profits and taxable profits are the same number.

How is Marginal Relief calculated?

The method has two steps. First, work out Corporation Tax on all of your profits at the 25% main rate. Second, subtract the Marginal Relief. The relief is found by taking the standard fraction and multiplying it by the amount by which the upper limit exceeds your augmented profits. Where augmented profits and taxable profits are equal, the formula is simply:

Marginal Relief = 3/200 × (£250,000 minus augmented profits)

A worked example

Take a trading company with taxable profits of £100,000, no associated companies and a standard 12 month period.

  • Tax at the main rate: £100,000 × 25% = £25,000
  • Marginal Relief: 3/200 × (£250,000 minus £100,000) = 3/200 × £150,000 = £2,250
  • Corporation Tax payable: £25,000 minus £2,250 = £22,750

That produces an overall effective rate of 22.75% on the full £100,000, sitting neatly between 19% and 25% as you would expect for profits about a quarter of the way through the band.

Why is the effective marginal rate 26.5%?

Here is the point that surprises many directors. Although the headline main rate is 25%, every extra pound of profit earned inside the band actually costs 26.5% in tax. The reason is that as profits rise by £1, the main rate charges an extra 25p, but the relief you can claim shrinks by 3/200 of that pound, which is 1.5p. Add the two together and each additional pound between £50,000 and £250,000 carries 26.5p of tax. This 26.5% marginal rate is why profit extraction planning matters, and why the choice between salary and dividends becomes especially worth reviewing once profits enter this range.

How do associated companies affect the limits?

Both the £50,000 and £250,000 limits are shared out where a company has associated companies. You divide each limit by one plus the number of associated companies. So a company with one associate divides by two, giving a lower limit of £25,000 and an upper limit of £125,000. A company with three associates divides by four, giving £12,500 and £62,500. Broadly, two companies are associated if one controls the other, or both are under common control. Getting this wrong is a common cause of underpaid tax, so if you hold interests in several companies it is worth checking the position carefully.

What happens with short or long accounting periods?

The limits assume a 12 month period. If your accounting period is shorter, both limits are reduced in proportion. A six month period, for example, halves them to £25,000 and £125,000. A Corporation Tax accounting period can never exceed 12 months, so a long set of accounts is split into two periods, each with limits scaled to its length. Time apportioning the limits correctly is essential, because a shortened period can pull profits into the Marginal Relief band that would have stayed below the lower limit over a full year.

Who cannot claim Marginal Relief?

Relief is not available to close investment holding companies, to companies that are not resident in the UK, or to any company whose augmented profits exceed the upper limit. Once you are over £250,000 (as adjusted for associates and short periods), the full 25% main rate applies to all profits. You can find more foundational reading in our accountancy and tax guide, which covers the surrounding rules in plain English.

Corporation Tax computations are a frequent trigger for HMRC enquiries, and Marginal Relief, associated company counts and period apportionment are exactly the sorts of figures an inspector may want to test. Answering those questions properly takes your accountant’s time, and that time is not free. A Solar Protect tax investigation insurance policy covers up to £100,000 of your own accountant’s defence fees with no excess to pay, so a routine enquiry does not become an unexpected bill. Get a quote to see how affordable that protection is.

Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.