The number that surprises most directors when they first see it is 26.5% — the effective corporation tax rate on profits between £50,000 and £250,000. It is higher than the headline 25% main rate above £250,000, and significantly higher than the 19% small profits rate below £50,000.
This happens because of marginal relief — a mechanism designed to smooth the transition between rates that creates a band where each additional pound of profit costs more tax than pounds either side of it. Understanding it is not optional if your profits sit anywhere near that range.
How UK corporation tax actually works in 2026-27
Many directors think corporation tax is simple: your company makes money, you pay 19% or 25% on it. The reality is slightly more nuanced — and there's a band in the middle where you pay more than the headline main rate.
| Profit level | Corporation tax rate |
|---|---|
| £0 – £50,000 | 19% (small profits rate) |
| £50,001 – £250,000 | Marginal relief applies — effective rate between 19% and 25% |
| Above £250,000 | 25% (main rate) |
In the £50,000–£250,000 band, a mechanism called marginal relief gradually increases your effective rate from 19% toward 25%. But here's the counterintuitive part: the marginal rate on each extra pound of profit in this band is 26.5% — higher than the 25% main rate above £250,000.
Why 26.5% is higher than 25%
Marginal relief works by giving companies a tax reduction that shrinks as profits increase. Each extra £1 of profit in the band increases your tax by 25p (the main rate), but it also reduces your marginal relief by £0.015 (1.5p). Together, that's 26.5p of tax cost per extra pound of profit in the band.
Here's the practical consequence: a company with £52,000 profit pays more effective tax than a company with £250,001 profit in percentage terms — not less. The band is specifically the most expensive place to sit.
Where the biggest planning opportunity sits
The single most valuable threshold to stay below is £50,000 taxable profit. The difference between £50,000 and £55,000 profit:
- Tax at £50,000: £9,500 (19%)
- Tax at £55,000: approximately £12,738 (marginal band)
- Tax on the extra £5,000 of profit: £3,238 — an effective rate of 64.8%
This isn't a quirk or loophole. It's how the marginal relief formula works. Reducing taxable profit from £55,000 to £50,000 saves more tax per pound than almost any other planning action available to a UK company.
Golden nugget: pension contributions in the marginal band are extraordinarily efficient
A £5,000 employer pension contribution on £55,000 profit drops you to £50,000 — saving £3,238 in corporation tax. Net cost of putting £5,000 in your pension: £5,000 − £3,238 = £1,762. You're accumulating £5,000 in pension savings for an out-of-pocket cost of £1,762. That's 65p of tax saving for every £1 contributed. No other legal tax planning route comes close to this efficiency level.
The other end of the band: above £250,000
Here's something many accountants don't highlight: if your profits are at £248,000, each additional £1,000 of profit costs you £265 in tax (26.5%). But if those profits take you above £250,000, that extra £1 is taxed at 25%. You're paying slightly less at the margin above £250,000 than just below it.
This means if your profits are between £240,000 and £250,000, there's limited tax benefit to squeezing under the £250,000 threshold — unlike the dramatic saving at the £50,000 threshold. Focus your planning effort on the £50,000 boundary, not £250,000.
Associated companies: the hidden complication
The £50,000 and £250,000 thresholds divide between associated companies. If you own or control two or more companies — including a holding company — the thresholds are divided equally.
| Number of associated companies | Small profits threshold per company | Main rate threshold per company |
|---|---|---|
| 1 (trading company only) | £50,000 | £250,000 |
| 2 (trading + holding) | £25,000 | £125,000 |
| 3 | £16,667 | £83,333 |
A director who forms a holding company to "future-proof" their structure doesn't just add admin — they halve the CT thresholds. A trading company that was comfortably in the 19% small profits band at £45,000 profit suddenly finds itself in the marginal band once a holding company is added. This is frequently overlooked in group restructuring decisions.
How to use the corporation tax calculator
The calculator on this site shows your exact corporation tax position at any profit level — including marginal relief calculations and the effective rate. Input your expected taxable profit, toggle pension contributions to see the saving, and compare the outcome at different profit levels. If your profit sits between £48,000 and £60,000, this calculation is worth doing carefully.
Written by Desh Naidoo-Cann · Founder, Apex Assets Group · MBA Finance
Apply this to your numbers
Frequently asked questions
Is there any way to skip the marginal relief band entirely?
Does my accounting period affect the thresholds?
What counts as an 'associated company' for CT purposes?
Important: This article is for general information only and does not constitute tax or legal advice. Tax rules change — always verify with HMRC or a qualified accountant before making decisions. Published 12 April 2026 for 2026-27.