Marginal Relief Calculator

How to use it

• Enter the taxable profit for the accounting period, after allowable expenses and capital allowances. This is not the same as your accounting profit. If the company made a loss, its taxable total profits are nil, so enter 0.
• Enter any distributions the company received from companies outside its group, mainly dividends. A company counts as outside the group here unless it is a 51% subsidiary of this one, a company of which this one is a 51% subsidiary, or a qualifying quasi-subsidiary, so a dividend from a sister company under the same ownership does count. Leave the box empty if there were none. These do not get taxed again, but they do count towards the £50,000 and £250,000 limits (FY2026).
• Enter the number of associated companies, counting this one. If there are none, leave it at 1.
• If the accounting period is shorter than twelve months, change the length. The limits reduce in proportion.
• Tick the box if the company is a close investment-holding company or is not UK resident. Neither the small profits rate nor marginal relief is available to those companies.

Why the next £1 of profit is taxed at 26.5%

This is the part that catches people out. Corporation tax is 19% on profits up to £50,000 and 25% from £250,000 (FY2026). In between, the company pays the main rate less marginal relief, which produces an effective rate that climbs gradually from 19% to 25%.

But the marginal rate, the tax on the next pound earned, is 26.5% throughout that band (FY2026). Earning an extra £1,000 of profit between £50,000 and £250,000 costs £265 in tax, not £250. Each extra pound is taxed at 25% and takes 1.5p of relief away at the same time.

Figures are for a 12 month accounting period, FY2026, with no associated companies and no distributions received from outside the group. That is why timing income and expenditure around the year end can matter more for a company in this band than for one comfortably below or above it.

Associated companies divide the limits

Where a company has associated companies, the £50,000 and £250,000 limits (FY2026) are divided between them. Two associated companies each get limits of £25,000 and £125,000 (FY2026), so a company earning £40,000 pays at the main rate less marginal relief rather than the small profits rate.

A company is generally associated with another where one controls the other, or both are under the control of the same person or persons, and it counts wherever in the world it is tax resident. A company that has carried on no trade or business at any time in the accounting period is left out of the count, and so is a passive holding company that meets the conditions in CTA 2010 s.18F. Where two companies are connected only through the rights of a relative or other associate of a shareholder, they are associated only if there is substantial commercial interdependence between them, so a spouse's unrelated company is not automatically counted. If you are unsure how many of your companies count, that is worth checking before the year end rather than after. Source: HMRC CTM03940, CTM03945 and CTM03950.

Dividends from other companies count towards the limits

The £50,000 and £250,000 limits (FY2026) are not tested against taxable profits. They are tested against augmented profits: the taxable total profits plus exempt distributions of a qualifying kind, mainly dividends, received from companies outside the group. The distribution itself is not taxed again, but it can push the company out of the small profits rate or out of marginal relief altogether.

In FY2026, a company with £45,000 of taxable profit and £20,000 of dividends from a company that is neither its 51% subsidiary nor its parent has augmented profits of £65,000. It is above the £50,000 lower limit, so the small profits rate is not available. Marginal relief is then scaled by taxable profits over augmented profits: 3/200 x (£250,000 minus £65,000) x (£45,000 divided by £65,000) = £1,921. The tax is £11,250 minus £1,921, so £9,329, not the £8,550 that 19% on £45,000 would give.

Three kinds of distribution are left out: one from a 51% subsidiary of the company, one from a company of which the company is itself a 51% subsidiary, and one from a trading company or relevant holding company that is a qualifying quasi-subsidiary. A dividend from a sister company under common control is not left out, even though that sister company is an associated company for the purpose of dividing the limits. Source: CTA 2010 s.18L and HMRC CTM03915.

What this does not cover

• Ring fence profits from oil and gas extraction, which have their own rates
• Patent box profits, taxed at an effective 10%
• Group relief, and losses brought forward or carried back
• An accounting period straddling 1 April where the rates, limits or fraction differ between the two financial years, in which case the period is split and each part is worked out separately

Companies that are not resident in the UK, and close investment holding companies, get neither the small profits rate nor marginal relief, so they pay the main rate of 25% (FY2026) on all their taxable profits. Tick the box above for those companies.

Common questions