Corporation Tax Marginal Relief Explained: How Small Companies Avoid the Full 25% Rate

If your limited company's profits sit between £50,000 and £250,000, you're not automatically taxed at the full 25% rate — and a surprising number of small business owners don't realise there's relief built in specifically for this band. Here's how it works and how to check what you actually owe.

The two headline rates

For financial years starting on or after 1 April 2026, the small profits rate remains 19% for companies with profits at or below £50,000, and the main rate stays at 25% for profits above £250,000, according to gov.uk. Neither threshold has changed since April 2023.

The band in between

Profits between £50,000 and £250,000 don't simply get taxed at 25%. Instead, marginal relief tapers the effective rate, so the more of your profit sits close to £50,000, the closer your effective rate is to 19% — and the closer it sits to £250,000, the closer it gets to 25%, per FreeAgent's corporation tax guide. The relief is calculated using a standard fraction (currently 3/200) applied to the difference between your profits and the upper threshold, then deducted from the tax charged at the main rate.

Crucially, these thresholds are divided between the number of "associated companies" you control. If you own two or more companies under common control, the £50,000 and £250,000 thresholds are split between them — so a business owner running multiple limited companies may find their effective threshold is much lower than they expect, according to tinytax.co.uk.

Why this matters for planning

Marginal relief means the jump from the small profits rate to the main rate isn't a cliff edge — but it does mean your effective tax rate rises steadily as profits grow through the band, reaching an effective marginal rate of 26.5% on profit within the taper zone itself, higher than the headline 25% main rate, as explained by Bloom Financials. This is a common surprise for growing businesses: your average rate stays below 25%, but the marginal cost of the next pound of profit in this band can exceed it.

Checklist: working out your corporation tax position

• Confirm your company's accounting period and total taxable profit for the year.
• Check whether you control any associated companies — this changes your effective thresholds.
• If your profit falls between £50,000 and £250,000, use HMRC's marginal relief calculator to work out your relief and effective rate.
• Review whether pension contributions, allowable expenses, or capital allowances could bring profit down closer to £50,000 before the year-end.
• Factor the higher marginal rate within the taper band into any decision about timing large expenses or investment.
• Speak to an accountant before assuming a flat 19% or 25% applies — most companies in this band pay somewhere in between.

How the UK compares internationally

Tiered corporate tax structures for smaller businesses exist in several countries. The United States applies a flat 21% federal corporate rate regardless of company size, with no equivalent small-profits taper, though some states add their own smaller-business relief. Australia offers a reduced 25% company tax rate for "base rate entities" with turnover under AUD $50 million, versus 30% for larger companies — a simpler two-tier system without the UK's tapering mechanism.

Key Numbers

• 19%: small profits rate for profit up to £50,000
• 25%: main rate for profit above £250,000
• 26.5%: effective marginal rate within the £50,000–£250,000 taper band
• 3/200: standard marginal relief fraction used in the calculation

Sources

• gov.uk: Corporation Tax rates and allowances
• gov.uk: Corporation Tax marginal relief guidance
• FreeAgent: UK Corporation Tax rates for 2026/27
• Bloom Financials: Corporation tax rates UK 2026

Educational content only — not financial advice.