Corporation tax for the financial year beginning 1 April 2026 has two headline rates: the 19% small profits rate for companies with profits up to £50,000, and the 25% main rate for profits over £250,000, unchanged at Budget 2025 per GOV.UK's corporation tax rates page. Between the two limits, marginal relief tapers the bill, and it produces the number every owner-manager should know: each extra pound of profit between £50,000 and £250,000 bears tax at 26.5% at the margin, which is more than the main rate itself. Correct as at 8 August 2026.
How does marginal relief work?
Mechanically: tax profits at 25%, then subtract marginal relief of 3/200ths of the gap between £250,000 and your profits. The result slides the effective rate smoothly from 19% at £50,000 up to 25% at £250,000. The arithmetic consequence is the marginal 26.5%: the relief you lose as profits rise costs 1.5 pence on top of the 25% headline for every extra pound inside the band.
A useful way to hold it in your head: the average rate on all your profit climbs gently through the band, but the rate on the next pound jumps to 26.5% the moment you pass £50,000 and stays there until £250,000. Decisions are made at the margin, so it is the 26.5%, not the blended average, that prices a bonus, a pension contribution or a piece of equipment bought before year end.
Example
Example. A company makes £100,000 of taxable profit in the year to 31 March 2027. Tax at 25% is £25,000. Marginal relief is 3/200 of (£250,000 minus £100,000), which is £2,250. The bill is £22,750, an effective rate of 22.75%. If the company earns £10,000 more, the bill rises by £2,650 (26.5% of the extra), not £2,500: that marginal slice is the most expensive profit the company will ever make under the current system.
| Profits (FY2026) | Corporation tax | Effective rate |
|---|---|---|
| £50,000 | £9,500 | 19% |
| £100,000 | £22,750 | 22.75% |
| £150,000 | £36,000 | 24% |
| £250,000 | £62,500 | 25% |
Why do the limits shrink for some companies?
The £50,000 and £250,000 limits are divided where a company has associated companies (broadly, companies under common control), and they are scaled down for accounting periods shorter than 12 months, per GOV.UK's marginal relief guidance. Two associated companies mean limits of £25,000 and £125,000 each. This is where groups and serial entrepreneurs get caught: a dormant-ish second company can halve the thresholds of the trading one, pulling profits into the 26.5% band earlier than expected.
Example: two companies, halved limits
Example. A founder owns two active companies: a trading company making £90,000 and a property company making £30,000, both with years to 31 March 2027. As associated companies, each works with limits of £25,000 and £125,000 (the £50,000 and £250,000 divided by two). The trading company's £90,000 sits squarely in its reduced band: tax at 25% is £22,500, less marginal relief of 3/200 of (£125,000 minus £90,000), which is £525, so £21,975, an effective 24.4%. The property company's £30,000, which would have enjoyed 19% as a standalone small company, is also now above its £25,000 lower limit and into the band. One structure decision, made years earlier for tidiness, moved both companies' next pounds to the expensive rates. Merging, or questioning whether the second company needs to exist, is a legitimate response; so is simply pricing the structure's true cost.
What does the 26.5% band change in practice?
It sharpens the value of deliberate, legitimate timing and structure inside the band. Employer pension contributions, capital investment and other allowable costs relieve tax at up to 26.5 pence in the pound for a company sitting between the limits, against 19 pence for a small-profits company: the same £20,000 pension contribution is worth £5,300 of corporation tax to a band company and £3,800 to a small one. Bonus timing works the same arithmetic, and so does the year-end itself where a business's profits are lumpy across seasons.
The discipline is to know, before committing money, which rate the next pound of profit or deduction faces this year and probably next. That question has a precise answer for every company, and it changes behaviour: capital spending lands better in band years, and profit deliberately accelerated into a 19% year beats profit drifting into a 26.5% one. None of this is exotic; it is sequencing decisions the company was making anyway. Our guide to audit exemption thresholds covers a neighbouring size-based cliff edge, and the extraction question (salary against dividends at the new 2026/27 rates) sits alongside it.
What to do now
Look up your expected profits for the current year and place them against the band. If you are inside £50,000 to £250,000, quantify what the marginal 26.5% means for planned spending and pension decisions before the year end, not after. Count your associated companies correctly, because HMRC will, and re-count whenever a new company is formed anywhere in the family: each incorporation moves everyone's limits. A rolling profit forecast reviewed quarterly, rather than a single year-end estimate, is what turns the band from a surprise on the tax computation into a dial the company actually manages. If profits hover near either limit, get the year-end conversation in early: our accounting team prepares the numbers and our tax planning side works the band arithmetic with you.
Frequently Asked Questions
For the financial year from 1 April 2026: 19% on profits up to £50,000, 25% on profits over £250,000, and a tapered amount between the two produced by marginal relief. The limits are shared between associated companies and scaled for short periods.
Because marginal relief is being withdrawn as profits rise through the band. The withdrawal adds 1.5 pence to the 25% headline on each pound between £50,000 and £250,000, so profit in the band bears 26.5% at the margin even though no published rate says so.
Broadly, companies under common control, with detailed rules in HMRC's guidance. Dormant companies are generally ignored, but a second active company, even a small one, divides the limits and drags the 26.5% band downwards for both.
It is claimed through the corporation tax return, and HMRC provides a calculator for the figure. The part that does not happen automatically is the planning: knowing which rate your next pound of profit or deduction faces is the useful piece, and that requires looking before the year end.
Yes. GOV.UK's guidance scales the £50,000 and £250,000 limits down proportionately for accounting periods shorter than 12 months, on top of any division for associated companies. A newly incorporated company with a 9-month first period is therefore judged against smaller limits than the headline figures suggest.
Talk to us about your company's band
If your profits sit between the limits, or an associated company is complicating the picture, speak to Zaman Khan, Senior Manager. The first conversation places your numbers against the band, prices the 26.5% effect on decisions you are already making, and flags anything structural worth fixing before the year end. Call 020 8554 2135 or email info@visionconsulting.co.uk, or use our contact page.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances.