Marginal relief corporation tax rules create a gradual transition between the 19% small profits rate and the 25% main Corporation Tax rate.
For a standard 12-month accounting period with no associated companies, a qualifying company generally:
| Taxable profit position | Corporation Tax treatment |
| £50,000 or less | The 19% small profits rate may apply |
| More than £50,000 but below £250,000 | Tax is calculated at 25%, less Marginal Relief |
| £250,000 or more | The 25% main rate generally applies |
These rates and limits apply to non-ring-fence profits. HMRC’s rates table confirms that the 19% small profits rate, 25% main rate and standard £50,000 and £250,000 limits continue for the financial year beginning 1 April 2026.
The limits are reduced when the accounting period is shorter than 12 months or the company has associated companies.
This means two businesses with the same taxable profit may have different Corporation Tax liabilities.
Key Takeaways:
- Marginal Relief prevents an immediate jump from the 19% small profits rate to the 25% main rate.
- Tax is normally calculated at 25% before Marginal Relief is deducted.
- The standard Marginal Relief fraction is 3/200.
- The commonly quoted 26.5% figure is a marginal rate, not the effective rate charged on all profits.
- Associated companies and short accounting periods reduce the standard profit limits.
- Relevant distributions can increase augmented profits and change the relief.
- HMRC’s Marginal Relief calculator can help check a calculation, but its result depends on accurate inputs.
What Is Corporation Tax Marginal Relief?
Corporation Tax Marginal Relief is a deduction from the tax calculated at the 25% main rate.
It may be available where a qualifying company’s augmented profits fall between its applicable lower and upper limits.
The relief gradually decreases as profits approach the upper limit. As a result, the company’s effective Corporation Tax rate rises progressively rather than moving directly from 19% to 25%.
Marginal Relief has applied to qualifying profits from 1 April 2023. It is not a separate headline Corporation Tax rate.
The formal approach is to calculate Corporation Tax at the main rate and then deduct the relief.
Why is Marginal Relief described as a Sliding Scale?
It is described as a sliding scale because the effective tax rate changes according to the company’s profit level.
A company near the lower limit receives more relief. As its augmented profits increase, the difference between those profits and the upper limit becomes smaller, reducing the amount of Marginal Relief.
At the upper limit, the relief reaches zero and the company effectively pays the 25% main rate.
Who Can Claim Marginal Relief Corporation Tax?
A UK-resident company may qualify for marginal relief corporation tax where its augmented profits exceed the applicable lower limit but do not exceed the applicable upper limit.
The company must establish:
- Its taxable total profits
- Its augmented profits
- The length of its accounting period
- The number of associated companies
- Whether any special company or industry rules apply
HMRC states that non-UK resident companies and close investment-holding companies cannot normally claim the standard Marginal Relief.
The tax rules for ring-fence oil and gas profits also differ from the standard non-ring-fence calculation.
A company should not assume that Marginal Relief applies simply because its accounting profit is between £50,000 and £250,000. The relevant limits and profit figures may differ from those headline amounts.
What Are the Marginal Relief Corporation Tax Thresholds?
The standard lower and upper limits are:
- Lower limit: £50,000
- Upper limit: £250,000
These standard limits apply where the company has a 12-month accounting period and no associated companies.
HMRC proportionately reduces the limits for shorter accounting periods and associated companies.
How Associated Companies Reduce the Thresholds?
The limits are divided by the total number of companies included in the calculation. This includes the company itself.
| Total companies in the calculation | Lower limit | Upper limit |
| 1 | £50,000 | £250,000 |
| 2 | £25,000 | £125,000 |
| 4 | £12,500 | £62,500 |
| 5 | £10,000 | £50,000 |
For example, if a company has one associated company, there are two companies in total. The standard limits are therefore divided by two.
A company is generally associated with another company where one controls the other or both are controlled by the same person or persons.
The detailed control rules can include rights, ownership relationships and certain connected persons, so the position may require professional review.
How a Short Accounting Period Changes the Thresholds?
When an accounting period is shorter than 12 months, the limits are reduced in proportion to the period’s length.
For a straightforward six-month period with no associated companies, the approximate limits would be:
- Lower limit: £50,000 × 6/12 = £25,000
- Upper limit: £250,000 × 6/12 = £125,000
HMRC explains that calculations should strictly reflect the number of days in the accounting period rather than relying only on whole months.
Where a company has both a short accounting period and associated companies, both adjustments may be required.
What Is the Marginal Relief Corporation Tax Formula?
The standard formula is:
Marginal Relief = (F × (U − A)) × (N ÷ A)
The formula uses four components:
| Symbol | Meaning |
| F | Standard Marginal Relief fraction |
| U | Applicable upper profit limit |
| A | Augmented profits |
| N | Taxable total profits |
For the current standard non-ring-fence calculation, the Marginal Relief fraction is 3/200, which is equivalent to 1.5%.
What Are Taxable Total Profits?
Taxable total profits are the profits on which Corporation Tax is calculated after relevant tax adjustments.
They are not necessarily the same as the profit shown in the company’s accounts. Expenses that are not allowable for Corporation Tax, capital allowances, losses and other tax adjustments can change the taxable figure.
Turnover should not be entered as taxable total profits. Turnover represents business income before expenses and other adjustments, while taxable total profits are calculated after applying the relevant Corporation Tax rules.
What Are Augmented Profits?
Augmented profits are broadly the company’s taxable total profits plus qualifying exempt distributions that are not excluded.
These distributions can include certain dividends and other distributions received from companies outside the relevant group relationships. Some intra-group distributions are excluded from the calculation.
This distinction matters because Marginal Relief eligibility is tested using augmented profits, while the tax itself is charged on taxable total profits.
When Can the Formula Be Simplified?
When taxable total profits and augmented profits are identical, N ÷ A equals one.
The formula then effectively becomes:
Marginal Relief = F × (U − A)
The simplified version should not be used automatically. If the company has received relevant distributions, augmented profits may exceed taxable total profits.
How to Calculate Marginal Relief Corporation Tax?
Step 1 — Establish the Correct Profit Figures
The company should calculate its taxable total profits and then determine whether any relevant distributions must be added to establish augmented profits.
For a simple trading company that has received no relevant distributions, the figures may be the same.
Step 2 — Adjust the Profit Limits
The standard £50,000 and £250,000 limits should be adjusted for:
- The number of associated companies
- An accounting period shorter than 12 months
- Any period that requires apportionment between financial years
Using the full standard limits when adjustments are required can overstate the available relief.
Step 3 — Calculate the Tax and Relief
Corporation Tax is first calculated at the 25% main rate:
Taxable total profits × 25%
The company then enters the relevant figures into the Marginal Relief formula:
(F × (U − A)) × (N ÷ A)
Step 4 — Deduct the Relief
The final Corporation Tax liability is:
Tax at the main rate − Marginal Relief
The effective Corporation Tax rate can then be calculated as:
Corporation Tax payable ÷ taxable total profits × 100
Worked Example: Marginal Relief Corporation Tax on £100,000 Profit
Assume that a company has:
- A 12-month accounting period
- No associated companies
- Taxable total profits of £100,000
- Augmented profits of £100,000
- No ring-fence profits
Calculate Corporation Tax at 25%
£100,000 × 25% = £25,000
Calculate Marginal Relief
3/200 × (£250,000 − £100,000) × (£100,000 ÷ £100,000)
Because taxable total profits equal augmented profits, the final part of the calculation equals one:
3/200 × £150,000 = £2,250
Calculate the Final Liability
£25,000 − £2,250 = £22,750
The company’s effective Corporation Tax rate is:
£22,750 ÷ £100,000 × 100 = 22.75%
The example shows why a company with £100,000 of profit does not pay 26.5% on all its profits. It pays an effective rate of 22.75% under these assumptions.
Why Is the Marginal Corporation Tax Rate 26.5%?
The 26.5% figure represents the marginal rate within the standard Marginal Relief band. It describes the tax associated with an additional pound of profit in the band, not the rate applied to every pound of company profit.
HMRC demonstrates the calculation as follows:
- Tax at the £250,000 upper limit: £250,000 × 25% = £62,500
- Tax at the £50,000 lower limit: £50,000 × 19% = £9,500
- Additional tax across the band: £62,500 − £9,500 = £53,000
- Width of the band: £250,000 − £50,000 = £200,000
- Marginal rate: £53,000 ÷ £200,000 = 26.5%
The difference between the 26.5% marginal rate and the 25% main rate is 1.5%, expressed in the formula as the fraction 3/200.
Marginal Rate Versus Effective Rate
| Term | Meaning |
| Small profits rate | The 19% rate for qualifying companies at or below the applicable lower limit |
| Main rate | The 25% rate used before deducting Marginal Relief |
| Marginal rate | The tax cost associated with an additional pound of profit |
| Effective rate | Total Corporation Tax divided by total taxable profits |
A company within the standard Marginal Relief band can therefore face a 26.5% marginal rate while its effective overall rate remains below 25%.
Corporation Tax Sliding Scale Examples
The following figures assume:
- A 12-month accounting period
- No associated companies
- No relevant distributions
- Augmented profits equal taxable total profits
- Standard non-ring-fence Corporation Tax rates
| Taxable profits | Corporation Tax | Effective rate |
| £50,000 | £9,500 | 19.00% |
| £75,000 | £16,125 | 21.50% |
| £100,000 | £22,750 | 22.75% |
| £150,000 | £36,000 | 24.00% |
| £200,000 | £49,250 | 24.625% |
| £250,000 | £62,500 | 25.00% |
The table demonstrates how marginal relief corporation tax produces a gradual increase in the effective rate. Actual liabilities may differ where adjusted limits, distributions, losses, ring-fence profits or other tax rules apply.
Worked Example With an Associated Company
Assume that a company has:
- Taxable total profits of £80,000
- Augmented profits of £80,000
- A 12-month accounting period
- One associated company
There are two companies in the calculation, so the standard limits are divided by two:
- Lower limit: £50,000 ÷ 2 = £25,000
- Upper limit: £250,000 ÷ 2 = £125,000
Tax at the main rate is:
£80,000 × 25% = £20,000
Marginal Relief is:
3/200 × (£125,000 − £80,000) × (£80,000 ÷ £80,000)
3/200 × £45,000 = £675
The final Corporation Tax liability is:
£20,000 − £675 = £19,325
The effective rate is approximately:
£19,325 ÷ £80,000 × 100 = 24.16%
Without the associated company, the upper limit would have been £250,000 and the relief would have been higher.
This illustrates why the associated-company check is important. HMRC confirms that the standard limits are divided according to the number of companies included in the calculation.
How Do Augmented Profits Affect Marginal Relief?
Consider a company with taxable total profits of £90,000 and £8,000 of relevant exempt distributions.
Its augmented profits are:
£90,000 + £8,000 = £98,000
Tax at the main rate is:
£90,000 × 25% = £22,500
Marginal Relief is calculated as:
3/200 × (£250,000 − £98,000) × (£90,000 ÷ £98,000)
This produces Marginal Relief of approximately £2,094, giving a Corporation Tax liability of approximately £20,406.
HMRC uses this example to demonstrate why the full N ÷ A part of the formula is necessary when augmented profits exceed taxable total profits.
Common Marginal Relief Corporation Tax Mistakes
Treating 26.5% as the rate on all profits
The 26.5% figure is a marginal rate within the standard band. The effective rate on total profits remains between 19% and 25% in a straightforward case.
Ignoring Associated Companies or Short Periods
Both can reduce the applicable limits. Using the full £50,000 and £250,000 thresholds when adjustments are required may produce an incorrect liability.
Using the Wrong Profit Figure
Turnover, accounting profit, taxable total profits and augmented profits are different concepts. The calculation must use the figures required by HMRC’s formula.
Assuming every company qualifies
Close investment-holding companies, non-UK resident companies and companies with specialist activities may not qualify under the standard rules.
Confirmed Facts About Marginal Relief Corporation Tax
As at 15 July 2026:
- The standard small profits rate is 19%.
- The standard main Corporation Tax rate is 25%.
- The standard lower limit is £50,000.
- The standard upper limit is £250,000.
- The standard Marginal Relief fraction is 3/200.
- The limits are adjusted for short accounting periods and associated companies.
- Marginal Relief reduces tax calculated at the main rate.
What Should a Company Do Next?
A company considering a Marginal Relief calculation should:
- Confirm the start and end dates of its accounting period.
- Calculate taxable total profits.
- Identify relevant exempt distributions and calculate augmented profits.
- Review all associated companies.
- adjust the lower and upper limits where required.
- Apply the full formula and compare the answer with HMRC’s calculator.
- Retain the supporting tax computation and ownership information.
HMRC’s online calculator can be used to check how much relief may be available. At the time this article was updated, HMRC reported that the calculator was fully available with no listed service issues.
Professional advice may be appropriate where the company has changing ownership, several connected businesses, relevant distributions, ring-fence profits or an accounting period spanning financial years with different rules.
Conclusion: Understanding Marginal Relief Corporation Tax
Marginal relief corporation tax provides a sliding transition between the 19% small profits rate and the 25% main rate.
A qualifying company calculates tax at 25% and then deducts Marginal Relief using the prescribed formula.
The calculation depends on taxable total profits, augmented profits, the relevant upper limit and the 3/200 standard fraction.
The 26.5% marginal rate should not be confused with the company’s overall effective Corporation Tax rate.
Associated companies, short accounting periods and relevant distributions can materially change the result, so each company should use its own facts and current HMRC guidance.
Frequently Asked Questions
What profit level triggers Corporation Tax Marginal Relief?
Marginal Relief may apply when augmented profits exceed the company’s adjusted lower limit but do not exceed its adjusted upper limit.
Is Marginal Relief calculated using turnover or profit?
It is calculated using taxable total profits and augmented profits, not turnover or unadjusted sales income.
Is the UK Corporation Tax rate 26.5%?
No. The standard main rate is 25%; 26.5% is the marginal rate on additional profits within the standard Marginal Relief band.
What is the effective Corporation Tax rate on £100,000 profit?
In a standard 12-month example with no associated companies or relevant distributions, the tax is £22,750, giving an effective rate of 22.75%.
How does an associated company affect Marginal Relief?
Associated companies reduce the lower and upper limits because the standard thresholds are divided by the total number of companies included.
Can Marginal Relief apply to a short accounting period?
Yes, but the lower and upper limits must be reduced in proportion to the length of the accounting period.
Do dividends received affect the calculation?
Certain qualifying exempt distributions can increase augmented profits, potentially reducing Marginal Relief or taking the company above the upper limit.
Editorial note: This guide provides general information about UK Corporation Tax. It is not tax advice.
A company should check its position against current HMRC guidance and obtain professional advice where its ownership, income or accounting period is complex.
Sources
HMRC — Marginal Relief for Corporation Tax
HMRC — Corporation Tax Rates and Allowances
HMRC Company Taxation Manual — Marginal Relief Formula
HMRC Company Taxation Manual — Definition of Augmented Profits
