Since April 2023, UK corporation tax has had three effective rates depending on your company's annual profits. If your profits fall in the middle band — between £50,000 and £250,000 — you pay somewhere between 19% and 25%, with a mechanism called marginal relief determining your exact rate. Here's how it works.
The three rates at a glance
| Annual profits | Rate | Name |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 – £250,000 | 19%–25% | Marginal relief band |
| Over £250,000 | 25% | Main rate |
Marginal relief is the mechanism that creates a smooth gradient from 19% to 25% across the middle band, rather than a sudden jump.
Why does marginal relief exist?
Without marginal relief, a company earning £50,001 would pay 25% on its entire profit — resulting in a higher tax bill than a company earning £50,000 at 19%. Marginal relief prevents this cliff edge by tapering the effective rate upward gradually as profits increase from £50,000 to £250,000.
The marginal relief formula
The calculation is straightforward. For a company with no associated companies:
Marginal Relief = (3 ÷ 200) × (£250,000 − Taxable Profits)
You first calculate tax at the 25% main rate, then subtract the marginal relief figure. The result is your actual corporation tax bill.
Worked examples
Example 1: £80,000 profit
- Main rate tax at 25%: £80,000 × 25% = £20,000
- Marginal relief: (3/200) × (£250,000 − £80,000) = (3/200) × £170,000 = £2,550
- Corporation tax due: £20,000 − £2,550 = £17,450
- Effective rate: £17,450 ÷ £80,000 = 21.8%
Example 2: £175,000 profit
- Main rate tax at 25%: £175,000 × 25% = £43,750
- Marginal relief: (3/200) × (£250,000 − £175,000) = (3/200) × £75,000 = £1,125
- Corporation tax due: £43,750 − £1,125 = £42,625
- Effective rate: £42,625 ÷ £175,000 = 24.4%
The hidden marginal rate
There is an important implication buried in this formula. Because marginal relief reduces as profits increase, every additional pound of profit in the £50,000–£250,000 band is effectively taxed at 26.5% — higher than either the 19% small profits rate or the 25% main rate.
This matters for tax planning. If your profits are in this band, even modest profit-reducing measures — increasing director pension contributions, bringing forward capital expenditure, or timing income — can save more tax per pound than they would at the main 25% rate.
How associated companies affect the limits
The £50,000 lower limit and £250,000 upper limit are divided equally between associated companies. An associated company is one that is under the same control — broadly, if you own or control more than 50% of two companies, they are associated.
With two associated companies, the limits become £25,000 and £125,000 each. With three, they are £16,667 and £83,333 each. This means that if you have associated companies, much lower profit levels attract the 25% main rate — something worth considering before setting up additional companies.
When is corporation tax due?
Corporation tax is due 9 months and 1 day after the end of your accounting period. So if your company's financial year ends on 31 March 2025, the tax is due by 1 January 2026. You must also file your Company Tax Return (CT600) with HMRC within 12 months of the end of the accounting period.
Large companies with profits above £1.5 million (divided by associated companies) pay by quarterly instalments, starting in the seventh month of their accounting period.