Corporation Tax rates and marginal relief: a plain English guide for 2026/27

Corporation Tax got more complicated in April 2023. Before that, every company paid the same flat rate of 19%. Now there are three effective rates, two thresholds, and a marginal relief calculation that catches most owner-managed businesses in the middle band.

This guide explains exactly how the rates work for the 2026/27 tax year, how to calculate marginal relief, and the rules that adjust the thresholds when you have more than one company.

The headline rates

For accounting periods starting on or after 1 April 2023:

The £50,000 and £250,000 thresholds are called the lower limit and upper limit respectively. Both are annual figures and are prorated for accounting periods shorter than 12 months, and both are divided by the number of associated companies (more on this below).

How marginal relief actually works

Marginal relief is a reduction in the tax bill for companies with profits between £50,000 and £250,000. The calculation is not "19% up to £50k, 25% above". It is a single calculation across the whole profit figure that produces an effective rate somewhere between 19% and 25%.

The formula, in HMRC's language:

Marginal relief = (Upper limit − Profits) × (Taxable total profits / Profits) × (3/200)

For most owner-managed companies with no non-trading income, "Taxable total profits" and "Profits" are the same, so the formula simplifies to:

Marginal relief = (£250,000 − Profits) × (3/200)

The final tax bill is then:

Corporation Tax = (Profits × 25%) − Marginal relief

Worked example: £100,000 profit

• Tax at main rate: £100,000 × 25% = £25,000
• Marginal relief: (£250,000 − £100,000) × (3/200) = £150,000 × 0.015 = £2,250
• Corporation Tax: £25,000 − £2,250 = £22,750
• Effective rate: 22.75%

Worked example: £200,000 profit

• Tax at main rate: £200,000 × 25% = £50,000
• Marginal relief: (£250,000 − £200,000) × (3/200) = £50,000 × 0.015 = £750
• Corporation Tax: £50,000 − £750 = £49,250
• Effective rate: 24.625%

The marginal rate is higher than 25%

Inside the marginal band, each extra pound of profit is taxed at an effective rate of 26.5%, not 25%. This is because adding profit both increases the tax at 25% and reduces the marginal relief. The difference catches owners by surprise.

That has an important planning consequence. A company earning exactly £250,000 pays £62,500 (25% flat). A company earning £249,999 pays slightly less but at a higher marginal rate. Squeezing just below £50,000 is worth real money. Squeezing just below £250,000 is not, because the rate is already near 25%.

Associated companies: the rule that catches groups

The £50,000 and £250,000 thresholds are divided by the number of associated companies, including the company being assessed.

Two companies are associated if one controls the other, or if both are under the control of the same person or group of persons. "Control" usually means holding more than 50% of shares, voting rights, or rights to assets on winding-up.

Example

A director owns 100% of Company A and 100% of Company B. Both are trading companies. They are associated. For each company:

• Lower limit: £50,000 / 2 = £25,000
• Upper limit: £250,000 / 2 = £125,000

A profit of £40,000 in each company falls in the marginal band, not the small profits band. The tax is:

• Tax at 25%: £40,000 × 25% = £10,000
• Marginal relief: (£125,000 − £40,000) × (3/200) = £1,275
• Corporation Tax per company: £8,725
• Total across both companies: £17,450

If the two companies were not associated, each would pay 19% on £40,000 = £7,600, total £15,200. The associated company rule costs £2,250 of extra tax on £80,000 of combined profit.

What counts as "control by the same person"

The rule catches more than just obvious groups. It catches:

• Husband and wife each owning separate companies (they are treated as one "person" for these purposes under the associate rules, in most cases)
• Family members with common control in certain situations
• Personal service companies where the director also has other trading companies

Dormant companies and non-UK resident companies are generally excluded, but the rules are detailed and exceptions exist.

Short accounting periods

Both the £50,000 and £250,000 thresholds are prorated for accounting periods shorter than 12 months. A 9-month period uses limits of £37,500 and £187,500. A 6-month period uses £25,000 and £125,000.

This matters most in the first year of a new company and in any year where the company changes its accounting reference date.

Close investment holding companies

Close investment holding companies (CICs, not to be confused with Community Interest Companies) do not qualify for the small profits rate or marginal relief. They pay Corporation Tax at the full 25% on all profits, regardless of size.

A close investment holding company is a close company whose business does not consist wholly or mainly of trading or letting land commercially. The most common examples are companies that exist primarily to hold investments (shares, bonds) on behalf of the owner.

This is a trap for holding companies set up for succession or asset protection purposes without a trading element.

Quarterly instalment payments

Companies with augmented profits above £1.5 million (divided by associated companies) must pay Corporation Tax in quarterly instalments rather than nine months and one day after the period end. Very large companies (augmented profits over £20 million) pay earlier still.

Augmented profits include exempt dividends received from other companies, so the threshold is lower than it first appears for groups.

Research and Development tax relief

For accounting periods starting on or after 1 April 2024, R&D relief operates under a single merged scheme for most companies, with an enhanced rate for "R&D intensive" loss-making SMEs. The relief is claimed as part of the Corporation Tax return and reduces the taxable profit (or creates a tax credit). This is a specialised area and worth a separate conversation if you think your company qualifies.

Patent Box

Companies exploiting patented inventions can elect into the Patent Box regime, which applies an effective 10% Corporation Tax rate to relevant IP profits. Again, specialised, and worth reviewing if you hold IP in the business.

The bottom line

Corporation Tax for 2026/27 is not a single rate. It is 19% up to £50,000, a tapered rate between £50,000 and £250,000 with a 26.5% effective marginal rate, and 25% above £250,000. The thresholds are divided by the number of associated companies, which catches a lot of owner-managed groups. The small profits rate does not apply to close investment holding companies at all.

If you want your Corporation Tax position reviewed as part of your year-end process, including an associated companies check, it is included in every S&J Insights and Foresight package. Pricing on the quote generator.