The short answer
Marginal relief is the calculation that stops corporation tax jumping straight from 19% to 25% when profits pass £50,000. A company with profits between £50,000 and £250,000 is charged at the main rate of 25%, then a relief worked out with HMRC’s 3/200 fraction is deducted, tapering the effective rate smoothly between the two. The number nobody puts on the tin is the marginal cost: every extra pound of profit inside the band is taxed at 26.5%, more than the main rate itself. Once a director sees that figure, most of the planning around this band explains itself.
This guide sets out the formula, two worked examples, what augmented profits means, how associated companies shrink the thresholds, and the legitimate levers that pull value out of the 26.5% band. Figures are for the 2026/27 financial year, and the service behind the guide sits on our corporation tax page.
Key takeaways
- The band runs £50,000 to £250,000. Below it the rate is 19%, above it 25%, and inside it marginal relief tapers the effective rate between the two.
- The fraction is 3/200. Relief equals 3/200 of the gap between £250,000 and your augmented profits, deducted from tax charged at 25%.
- Each pound in the band costs 26.5p. The effective marginal rate inside the band is 26.5%, which makes reliefs worth the most to companies sitting there.
- Associated companies shrink everything. The £50,000 and £250,000 limits are divided between companies under common control.
- It is claimed, not automatic. The relief is claimed in the CT600, where good software and a good adviser compute it for you.
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Why the band exists
Since April 2023 there have been two corporation tax rates: 19% for small profits up to £50,000 and 25% above £250,000. Without a bridge, a company earning £50,001 would suddenly pay the main rate on everything, a cliff edge of thousands of pounds for one extra pound of profit. Marginal relief is the bridge. It charges the whole profit at 25%, then hands back a relief that shrinks as profits climb, so the effective rate rises smoothly from 19% at the bottom of the band to 25% at the top.
The bridge removes the cliff edge, and quietly leaves a higher rate in its place.
The formula, in plain steps
For a standalone company with a 12-month accounting period, the calculation is three steps. First, tax the whole taxable profit at 25%. Second, work out the relief: 3/200 multiplied by the difference between £250,000 and your augmented profits (where taxable and augmented profits are the same, which they are for most owner-managed companies, the formula really is that short). Third, deduct the relief from the tax.
The calculation, end to end
Take the taxable profit for the period
Charge the whole profit at the 25% main rate
Work the relief: 3/200 of (£250,000 less augmented profits)
Deduct the relief from the tax charged. What is left is the corporation tax payable.
You do not need to run this by hand. The relief is claimed in the company’s CT600 and any competent filing software computes it, and HMRC publishes its own calculator. What matters to a director is not the arithmetic but the shape: relief shrinks by 1.5p for every extra pound of profit, which is exactly where the 26.5% marginal rate comes from.
From our casework
One practical note on timing. The relief is computed for the return, but the money falls due 9 months and 1 day after your year end, so the figure matters to your cash flow long before it matters to HMRC. If you would rather sense-check yours with a person than a calculator, that is what the first call is for. Nasra G. described hers in October 2021: “I had my first free 15 minutes phone call, I was provided with lots of different advice and all my questions have been answered.”
★★★★★ Nasra G. in her own words, Google review, October 2021
Worked example one: £100,000 of profit
Tax at 25% is £25,000. The relief is 3/200 of the £150,000 gap to the upper limit, which is £2,250. Tax payable is £22,750, an effective rate of 22.75%. Note the two rates living in one result: the average rate is a gentle 22.75%, but the last pound of that profit was taxed at 26.5p. Averages soothe; margins decide.
Worked example two: £220,000 of profit
Tax at 25% is £55,000. The relief is 3/200 of the remaining £30,000 gap, just £450, giving tax of £54,550 and an effective rate of 24.8%. Near the top of the band the relief has almost run out, and the company is a whisker from the full main rate. The pattern across both examples: the further through the band you travel, the less the relief matters and the more the 26.5% marginal cost has already been paid.
Augmented profits: the small print that changes the answer
The relief is measured against augmented profits, which is taxable profit plus exempt dividends the company receives from companies outside its group. For a typical trading company that holds no shares, augmented and taxable profits are identical and the point never bites. But a company that receives dividends from investments can find its augmented profits pushed higher, shrinking or removing the relief even though the dividends themselves are not taxed. If your company holds a portfolio, this is worth a proper look before the year end.
Associated companies: the thresholds are shared
The £50,000 and £250,000 limits are divided by the number of associated companies plus your own. One associated company halves them to £25,000 and £125,000; two cut them to roughly £16,700 and £83,300. Companies are associated when one controls the other or both sit under common control, and control by close family, including a spouse or civil partner, can count. Dormant companies are excluded, and short accounting periods scale the thresholds down proportionately too. This is the rule that quietly moves director-owned groups into the band, and it is checked as standard in our year-end work for limited companies.
The checking matters more than the arithmetic. Robert B., a professional landlord who had worked with us for about eight years when he wrote in February 2020, singled out something other than the compliance: “clear advice on planning Business structure and Account management”. Structure decides your thresholds, thresholds decide your rate, and the order only works in that direction.
★★★★★ Robert B. in his own words, Google review, February 2020
The service that handles this
Thresholds checked, reliefs claimed, CT600 filed with nothing left on the table
We compute marginal relief, check the associated company position and plan the reliefs before the year closes, so the payment date arrives as a number you already knew.
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Does the company receive dividends from companies outside its group?
Has an employer pension contribution been planned for this year?
Is any capital spending, equipment, vans or computers, coming up?
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Planning inside the 26.5% band
Because each pound in the band is taxed at 26.5%, a deductible pound is worth more here than anywhere else in the corporation tax system. The levers are the honest ones: an employer pension contribution for the director, which we cover in our guide on pensions in a business tax plan, capital spending timed before the year end so allowances land in the current year, and bonuses or other genuine costs accrued properly rather than slipping into next year. This is efficiency inside the rules, planned before the year closes, which is precisely the work of our tax planning service alongside the corporation tax return itself.
Restructuring is the same instinct on a larger scale. In March 2013 a client wrote that Total Books “has availed me to restructure my business in a positive manner, which has highly benefited me financially in the long term” (Leila A.). That was her outcome in her circumstances, reported by her, not a promise of the same result for anyone else. What carries across is the principle: the shape of a business is a lever, and it can only be pulled before the year closes.
★★★★★ Leila A. in her own words, Google review, March 2013
A deductible pound is worth more inside this band than anywhere else.
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Frequently asked questions
What is the marginal relief fraction for 2026/27?
3/200, applied to the difference between the £250,000 upper limit and the company’s augmented profits. The result is deducted from tax charged at the 25% main rate, producing an effective rate between 19% and 25%.
Is marginal relief automatic?
It has to be claimed in the company’s CT600, but in practice filing software calculates it and a competent adviser will never miss it. HMRC also publishes a calculator if you want to sense-check a figure.
Why is the marginal rate 26.5% when the main rate is 25%?
Because relief is withdrawn as profits rise. Each extra pound is taxed at 25p and also strips away 1.5p of relief, a combined 26.5p. The average rate stays between 19% and 25%, but the cost of the next pound of profit inside the band is always 26.5%.
My spouse owns a separate company. Does that affect my thresholds?
Possibly. Companies under common control are associated, and the rights of close family, including spouses and civil partners, can be counted when establishing control. If the companies are associated, the £50,000 and £250,000 limits are split between them. It needs checking against the facts rather than assuming either way.
Does marginal relief apply above £250,000?
No. At £250,000 of augmented profits the relief reaches zero and the main rate of 25% applies to the whole profit. Below £50,000 there is nothing to relieve because the small profits rate of 19% applies directly.
Keep reading
Three guides that sit either side of this one, for directors working through the same year end.
Deadlines
Every date in the corporation tax cycle, and why the payment falls due before the return.
When corporation tax is due →Profit extraction
How the salary and dividend split changes what the company and you each pay.
Salary versus dividends →Capital spending
Where the 100% first year allowance on a new electric car lands against profits.
Buying a car through your company →Find out what your next pound of profit costs
Total Books Accountants Ltd is a regulated, founder-led practice of limited company accountants, led by Buhir Rafiq with more than 30 years in accounting and finance. We are AAT licensed, an HMRC registered tax agent, a Companies House authorised agent and a Xero Certified Advisor, working from offices in Cardiff, Newport and Bristol and UK-wide through our Virtual Finance Office with secure digital onboarding.
If your profits are anywhere near the band, book a free 15-minute business call before your year end and we will show you the levers worth pulling.
Before your year end
Know what the last slice of profit is costing you
Fifteen minutes on the phone is usually enough to tell you where your profits sit, whether your thresholds are being shared, and which levers are still open this year.
This guide is general information, not advice for your specific situation. Rates, thresholds and the associated company rules depend on the facts and can change. Filing remains the responsibility of the company and its directors; please take professional advice before acting.
