Marginal relief is a Corporation Tax reduction that applies when your company's profits sit between £50,000 and £250,000. It smooths the jump between the 19% small profits rate and the 25% main rate, so you pay an effective rate somewhere in between rather than the full 25% the moment you clear £50,000.
If your limited company is profitable but not huge, this is the rule that decides your real tax rate. Get it wrong and you can over-provide for tax, misquote your effective rate, or trip up on the associated-company rules that quietly shrink the limits.
This is a plain-English glossary entry: what marginal relief means, the limits and fraction for the current financial years, the formula HMRC uses, and a worked example you can follow line by line. It is written for directors of UK limited companies and the people who run their numbers.
Marginal relief: a quick definition
Marginal relief is a deduction from your Corporation Tax bill that reduces the headline 25% main rate when your taxable profits (strictly, your augmented profits) fall between the £50,000 lower limit and the £250,000 upper limit. You calculate tax at the main rate, then subtract the relief, giving an effective rate that rises gradually from 19% towards 25% as profits grow.
How does marginal relief work?
Since 1 April 2023, Corporation Tax has had two rates rather than one flat rate. Companies with profits of £50,000 or less pay the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%. Marginal relief is what happens in the band in between.
Without it, a company nudging just over £50,000 would suddenly face 25% on the whole lot, which would be a harsh cliff edge. Instead, marginal relief tapers the rate. You start by charging all your profit at 25%, then claw back a chunk of tax through the relief. The closer your profit is to £50,000, the bigger the relief and the lower your effective rate. The closer you get to £250,000, the smaller the relief, until at £250,000 it disappears and you simply pay 25%.
So marginal relief never gives you a lower bill than the 19% small profits rate, and never a higher bill than the 25% main rate. It fills the gap between them with a smooth slope.
What are the limits and fraction for 2026/27?
The figures below apply for the financial years from 1 April 2023 onwards, which covers Financial Year 2025 (the year beginning 1 April 2025) and Financial Year 2026 (the year beginning 1 April 2026). Note that Corporation Tax runs on financial years to 31 March, not the 6 April income tax year.
| Item | Figure | Applies to |
|---|---|---|
| Small profits rate (profits up to £50,000) | 19% | FY2025 and FY2026 |
| Main rate (profits over £250,000) | 25% | FY2025 and FY2026 |
| Lower limit | £50,000 | FY2025 and FY2026 |
| Upper limit | £250,000 | FY2025 and FY2026 |
| Marginal relief standard fraction | 3/200 | FY2025 and FY2026 |
These limits assume a single company with a full 12-month accounting period. Both the lower and upper limits are reduced if your accounting period is shorter than 12 months, or if you have associated companies (see below).
What is the marginal relief formula?
HMRC sets the relief using a standard fraction. For the current financial years that fraction is 3/200. The full formula is:
Marginal Relief = (Upper Limit - Augmented Profits) x (Taxable Total Profits / Augmented Profits) x standard fraction
For most companies, augmented profits and taxable total profits are the same number (augmented profits only differ when you have received certain dividends from companies outside your group, covered below). When they are equal, the middle bracket cancels to 1, and the formula simplifies to:
Marginal Relief = (£250,000 - Profits) x 3/200
You then work out your bill in two steps:
- Tax all your taxable profits at the 25% main rate.
- Subtract the marginal relief.
The result is your Corporation Tax for the period. Dividing that by your profits gives your effective rate.
Illustrative example: marginal relief on 100,000 of profit
Illustrative example. Imagine Northgate Joinery Ltd, a single trading company with no associated companies and a normal 12-month accounting period ending 31 March 2027. Its taxable total profits for the year are £100,000, and it has received no dividends, so its augmented profits are also £100,000.
Step 1, tax at the main rate:
£100,000 x 25% = £25,000
Step 2, marginal relief. Because augmented profits equal taxable profits, the formula simplifies:
(£250,000 - £100,000) x 3/200 = £150,000 x 0.015 = £2,250
Step 3, Corporation Tax due:
£25,000 - £2,250 = £22,750
So Northgate pays £22,750, not the £25,000 the headline main rate suggests. That is an effective rate of 22.75% (£22,750 / £100,000), sitting neatly between 19% and 25%.
These figures are illustrative. Your own result depends on your exact profits, your accounting period length, your associated companies and any qualifying dividends received.
How do associated companies change the limits?
This is where companies most often get caught out. The £50,000 and £250,000 limits are not fixed per company. They are shared.
If your company has associated companies, both limits are divided by the total number of companies (yours plus its associates). HMRC's own example: a company with three associated companies divides both limits by four, giving a lower limit of £12,500 and an upper limit of £62,500. A company is generally associated with another where one controls the other, or both are under common control.
The limits are also reduced proportionately if your accounting period is shorter than 12 months. A six-month period halves both limits.
The practical effect is significant. A company you thought was comfortably inside the small profits rate can be pushed into marginal relief, or even up to the full main rate, once associates shrink its limits. If you run more than one company, this is worth getting right before you file. Our Corporation Tax services cover exactly this kind of group and associated-company review.
What are augmented profits?
Augmented profits are your taxable total profits plus certain exempt distributions, mainly dividends, received from companies that are not part of your own group. They matter because the limits and the marginal relief formula are tested against augmented profits, not just your trading profit.
Dividends from your own 51% subsidiaries (or from a parent of which you are a 51% subsidiary) are excluded, so normal intra-group dividends do not inflate your augmented profits. It is dividends from outside companies, for example a minority shareholding in an unconnected company, that count.
For most owner-managed trading companies, augmented profits and taxable total profits are identical, which is why the simplified formula works. If your company holds investments in unconnected companies and receives dividends from them, the position is more involved and worth checking properly. Because Corporation Tax interacts with how you draw profit personally, it is also worth modelling your salary and dividend mix; our income tax calculator helps you see the personal-tax side of the picture.
Frequently asked questions
What is marginal relief for Corporation Tax?
Marginal relief is a deduction that reduces your Corporation Tax when your company's profits fall between the £50,000 lower limit and the £250,000 upper limit. You charge tax at the 25% main rate, then subtract the relief, giving an effective rate that rises gradually from 19% towards 25% as profits increase.
What is the marginal relief fraction for 2026/27?
The standard marginal relief fraction is 3/200 for the financial years from 1 April 2023 onwards, which includes Financial Year 2025 and Financial Year 2026. You multiply this fraction by the gap between your profits and the £250,000 upper limit (adjusting for augmented profits where relevant).
How do I calculate marginal relief?
Use the formula: (Upper Limit minus Augmented Profits) multiplied by (Taxable Total Profits divided by Augmented Profits) multiplied by the 3/200 fraction. Where augmented profits equal your taxable profits, it simplifies to (£250,000 minus profits) multiplied by 3/200. Subtract the result from your tax charged at the 25% main rate.
Do associated companies affect marginal relief?
Yes. The £50,000 and £250,000 limits are divided by the total number of associated companies plus your own. For example, with three associated companies you divide both limits by four, giving a £12,500 lower limit and a £62,500 upper limit, which can push a company into marginal relief or up to the full main rate.
What is the effective Corporation Tax rate with marginal relief?
It varies between 19% and 25% depending on your profits. A single company with £100,000 of profit and no associates pays an effective rate of 22.75% for the current financial years. The rate rises as profits move towards £250,000 and falls towards 19% as they approach £50,000.
