- Corporation tax is 19% up to £50,000 of profit and 25% above £250,000.
- Between £50,000 and £250,000, marginal relief gives an effective 26.5% on that slice.
- The £50,000 and £250,000 thresholds are divided by the number of associated companies.
- The effective 26.5% band is higher than the 25% main rate, which surprises many directors.
- Pension contributions and other allowable costs reduce the profit the tax is calculated on.
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The rates
For 2025/26 (financial year from 1 April 2025), corporation tax has three zones:
- Small profits rate, 19%: taxable profit up to £50,000
- Marginal relief band: profit between £50,000 and £250,000, with an effective marginal rate of 26.5%
- Main rate, 25%: profit above £250,000
How marginal relief works
In the middle band, you start from the 25% main rate and subtract marginal relief, calculated as (£250,000 minus your profit) times a fraction of 3/200. The arithmetic produces a strange result: the extra tax on each pound between £50,000 and £250,000 is effectively 26.5%, higher than the 25% main rate itself.
So a company with £80,000 of profit pays 19% on the first £50,000 and an effective 26.5% on the next £30,000. That counter-intuitive 26.5% band is exactly why directors with profits in this range pay close attention to pension contributions and timing.
Associated companies
The £50,000 and £250,000 thresholds are shared. If you control more than one company, the thresholds are divided by the number of associated companies. Two associated companies, for example, drop the small profits ceiling to £25,000 each and the upper limit to £125,000 each.
This catches founders who run several companies, and it is easy to overlook. Take Home models corporation tax across all the companies you own, so the associated-company effect is built in rather than a nasty surprise.