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 and set out on GOV.UK's corporation tax rates page. Between the two limits, marginal relief tapers the bill, and the resulting marginal rate is: 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. Both limits are lower for a company with associated companies or an accounting period shorter than 12 months.
How does marginal relief work?
Mechanically, for a company with a 12-month accounting period, no associated companies and no dividends from companies outside its group: 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 profits pass the lower limit (£50,000 for a standalone company with a 12-month year) and stays there until the upper limit (£250,000 for the same company). 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 bears 26.5%, above the 25% main rate. This simplified example and the table below assume a UK resident company that is not a close investment-holding company, a 12-month accounting period, no associated companies, and no distributions received that would lift augmented profits above taxable profits. Different circumstances need the full calculation.
| 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. The limits are tested against augmented profits, meaning taxable total profits plus most exempt dividends received from companies outside the group, so investment income can carry a company over a limit its trading profits alone would not reach. Two categories of company cannot claim marginal relief at all, whatever their profits: close investment-holding companies and non-UK resident companies. For FY2026 and a 12-month accounting period, two companies associated with each other each work with limits of £25,000 and £125,000; in general, the limits are divided by one plus the number of associated companies a company has. This is the point to check if you control more than one company: a second company that carries on a business, even a small one, 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. This assumes both companies are UK resident and receive no dividends from other companies, and that the property company lets to unconnected tenants: if it let the premises to the founder's trading company or another connected person, it would be a close investment-holding company and pay 25% on all its profits, with no marginal relief. One structure decision, made years earlier for tidiness, raised both companies' bills and moved the property company's next pounds from 19% to 26.5%.
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 that qualifies for capital allowances 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: a £20,000 employer pension contribution, paid in the year and deductible in full, is worth £5,300 of corporation tax to a company whose profits stay inside the band after the deduction, 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. 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 the band means at the year end
Expected profits for the current year, placed against the company's own limits, show which rate the next pound of profit or deduction faces. For a company inside the band, deductible spending and pension contributions paid before the year end can save tax at up to 26.5%. The associated-company count sets where the band sits, and it can change whenever control changes or a new company is formed under the same control. Association turns on common control: rights of close relatives are brought into the count only where there is substantial commercial interdependence between the companies, so a company owned by a family member does not automatically divide your limits, while one you control does. Reviewing a rolling profit forecast during the year can show whether expected profits are approaching either limit. Where profits sit near either limit, the year-end figures decide which side of it the company lands; our accounting team prepares the numbers and our tax planning side can work through the band arithmetic with you. If this is a family business you expect to pass on, the £2.5 million cap on 100% business property relief from 6 April 2026 (50% relief above it) is the other number worth knowing.
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.
Broadly, companies under common control, with detailed rules in HMRC's guidance. Dormant companies are generally ignored. A second active company under common control, even a small one, divides the limits and drags the 26.5% band downwards for both; a company owned by a relative, which you do not yourself control, counts only where the businesses are substantially commercially interdependent.
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 our team. We can place your numbers against the band, price the 26.5% effect on decisions you are already making, and flag 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. Speak to us before acting.