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Compliance19 October 2026·12 min read

Corporation tax rates in 2026: 19%, 25% and marginal relief

UK companies pay 19% on profits of £50,000 or less and 25% above £250,000. In between, marginal relief reduces the 25% charge, so the effective rate on the top slice of profit is 26.5%. This guide works through the calculation, shows how associated companies and short accounting periods shrink the limits, and says what to check on payment dates.

A UK company pays Corporation Tax at 19% if its profits are £50,000 or less and 25% if they are above £250,000. Between those two figures it pays the 25% main rate, reduced by marginal relief, so the rate climbs gradually instead of jumping. These rates have applied since 1 April 2023, and HMRC's published rates table shows the same figures for Corporation Tax years starting 1 April 2024, 2025 and 2026.

The detail that catches people is that the £50,000 and £250,000 limits are not fixed for every company. They shrink if your accounting period is shorter than 12 months, and they shrink again for every associated company you have. This article covers the rates, how the relief is calculated, who cannot claim it, and the worked examples that make it concrete.

The 2026 Corporation Tax rates at a glance

GOV.UK states the position directly: if your company made more than £250,000 profit, you pay the main rate; if it made £50,000 or less, you pay the small profits rate of 19%; and if profits fall between the two, you may be entitled to marginal relief.

Profits Rate of Corporation Tax
£50,000 or less 19% (small profits rate)
Between £50,000 and £250,000 25% main rate, less marginal relief
More than £250,000 25% (main rate)

The two-rate system started on 1 April 2023. Before that, from 1 April 2015 to 31 March 2023, a single rate applied to all companies. HMRC's rates table gives the standard marginal relief fraction as 3/200 for each year from 2023 to 2026, and PwC's UK summary confirms that the main rate stays at 25% for the financial year beginning 1 April 2026.

A few things sit outside this table. Companies making ring fence profits from oil extraction or oil rights in the UK or on the UK continental shelf have different rates. Unit trusts and open-ended investment companies have a special 20% rate. Neither is likely to describe a contractor's limited company or a small firm, so the rest of this article deals with the ordinary rates.

Why the rate applies to all of your profits

Income tax charges the higher rate only on the slice of income above a threshold. Corporation Tax does not work like that. The Association of Taxation Technicians (ATT) puts it plainly: the relevant rate applies to all of a company's profits. Once profits go above the upper limit, the whole amount is taxed at 25%, not just the part above £250,000.

Without marginal relief, that would create a cliff edge at £50,000. A company with £49,999 of profit would pay £9,500, while a company with £50,001 would pay £12,500, a £3,000 jump for £2 of extra profit. Marginal relief exists to remove that cliff.

How marginal relief works

Marginal relief gives a gradual increase in the rate between the small profits rate and the main rate. You calculate Corporation Tax at 25% on all your profits, then deduct the relief. The statutory formula, as set out in the legislation and reproduced by Ross Martin and the ATT, is:

F x (U - A) x N / A

  • F is the standard marginal relief fraction, 3/200.
  • U is the upper limit that applies to the company, £250,000 unless it has been reduced.
  • A is the company's augmented profits.
  • N is its taxable total profits.

For most small owner-managed companies, N and A are the same number, so N / A is 1 and the formula collapses to 3/200 x (£250,000 - profits). The reason is that augmented profits are taxable profits plus certain exempt dividends received from companies outside your group. A contractor or small firm that receives no such dividends has augmented profits equal to taxable profits.

The ATT's definition is precise. Augmented profits are taxable profits plus exempt distributions of a qualifying kind, such as dividends, but excluding distributions received from a 51% subsidiary, a fellow 51% subsidiary of the same company, or a consortium-type quasi-subsidiary. If your company holds shares in an unrelated company and receives dividends, those dividends count when testing which band you are in, even though they are not taxed.

Worked example: £120,000 of profit

Take a limited company with taxable profits of £120,000 in a 12-month period and no associated companies.

  1. Tax at the main rate: £120,000 x 25% = £30,000
  2. Marginal relief: 3/200 x (£250,000 - £120,000) = 3/200 x £130,000 = £1,950
  3. Corporation Tax due: £30,000 - £1,950 = £28,050

The effective rate is £28,050 divided by £120,000, which is 23.4%. That sits between 19% and 25%, as the system intends.

Worked example: £60,000 of profit

A company with £60,000 of profit, no associated companies and a 12-month period:

  1. Main rate: £60,000 x 25% = £15,000
  2. Marginal relief: 3/200 x (£250,000 - £60,000) = 3/200 x £190,000 = £2,850
  3. Corporation Tax due: £15,000 - £2,850 = £12,150

The effective rate is 20.25%. You can check this the other way, using slices: the first £50,000 at 19% is £9,500, and the next £10,000 at 26.5% is £2,650. The total is the same £12,150.

The 26.5% figure explained

Between £50,000 and £250,000, each extra pound of profit costs more than 25%. The reason is that as profit rises you pay 25% on the extra pound and also lose a little of the relief. The ATT and others describe this as an effective rate of 26.5% on profits in the marginal relief band.

Two points about that number:

  • It is not a statutory rate. The ATT is explicit that the 26.5% is an effective rate, not an actual one. Your tax bill is never calculated by applying 26.5% to the whole of your profit.
  • Your overall effective rate stays at or below 25%. In the examples above it was 23.4% and 20.25%. It only climbs towards 25% as profit approaches £250,000.

The 3/200 fraction itself is derived from this. Tax on £250,000 at 25% is £62,500; tax on £50,000 at 19% is £9,500. The difference of £53,000, spread over the £200,000 band, is 26.5%, which is 1.5 percentage points above the main rate. 1.5% expressed as a fraction is 3/200.

Why it matters for planning

Because the rate on the top slice is 26.5%, reducing profit inside the band saves more than 25p per pound. The ATT gives a simple illustration: a company with £80,000 of profit that makes an extra £1,000 pension contribution could save £265 of Corporation Tax.

Here is a larger case. A company has £120,000 of profit and a Corporation Tax bill of £28,050. It makes a £20,000 employer pension contribution, which reduces taxable profit to £100,000.

  • Tax at 25% on £100,000 is £25,000.
  • Marginal relief is 3/200 x (£250,000 - £100,000) = £2,250.
  • Corporation Tax due is £22,750.

The bill falls by £5,300, which is more than the £5,000 you would expect from a straight 25% calculation, because the relief grows as profit falls. The net cost of the £20,000 contribution to the company is £14,700. Timing of expenditure and qualifying charitable donations work on the same principle. Whether any of these is right for you depends on your wider position, so take advice before acting on tax grounds alone. For directors who also draw a salary and dividends, the same profit figure feeds into our guide to salary and dividends for contractors in 2026-27.

Who cannot claim marginal relief

Not every company gets the small profits rate or marginal relief. GOV.UK says you cannot claim marginal relief if:

  • you are a non-UK resident company;
  • you are a close investment holding company; or
  • your profits, including distributions from unrelated, unassociated companies, go over £250,000.

The ATT adds that these companies always pay the main rate regardless of their level of profits, and that the small profits rate is not available to non-resident companies.

A close investment holding company is defined in section 18N of the Corporation Tax Act 2010. Any close company is one, unless it exists wholly or mainly for a permitted purpose. The permitted purposes include trading, investing in land or property for commercial letting, and acting as a service or holding company for a group company that does one of those things. A company that only holds listed investments is unlikely to qualify as existing for a permitted purpose, so it is likely to be a close investment holding company. Letting property to a connected party does not count as commercial letting. If you run a property company, that distinction is worth checking; our guide to buy-to-let limited company accounts covers the accounts side.

Associated companies divide the limits

This is the part that surprises small business owners. The £50,000 and £250,000 limits are divided by the total number of associated companies, counting your own company. GOV.UK gives the example: if your company has three other associated companies, the limits are divided by four, so the lower limit becomes £12,500 and the upper limit becomes £62,500.

Associated companies are, broadly, companies under common control. The ATT explains that the interests of associates can be attributed to each other where there is substantial commercial interdependence, and that identifying the number of associated companies is key to applying the correct rate. Non-resident companies count towards the total.

Corporate members of the same LLP are not automatically associated. If the individuals controlling the two companies are not associates, and there is no other connection or arrangement giving rise to common control, they are not associated companies simply because they are members of the same LLP.

Worked example: three companies under common control

Suppose a company has two associated companies, so three in total, and taxable profits of £75,000 with no dividends received.

  • The lower limit becomes £50,000 / 3 = £16,667.
  • The upper limit becomes £250,000 / 3 = £83,333.
  • Tax at 25% on £75,000 is £18,750.
  • Marginal relief is 3/200 x (£83,333 - £75,000) = £125.
  • Corporation Tax due is £18,625.

The effective rate is 24.83%. The same £75,000 of profit in a standalone company would produce a bill of £16,125, an effective rate of 21.5%. The associated companies rules cost this company about £2,500 in Corporation Tax. As profits approach the reduced upper limit, the effective rate gets closer to 25%.

The associated companies definition is similar to, but not identical to, the rules for the Employment Allowance and the Annual Investment Allowance. The ATT warns that a company may need to be counted for one purpose but not another, so do not assume the answer carries across.

Short accounting periods and straddling periods

The limits follow your company's accounting period, not the tax year. If the period is shorter than 12 months, which is common in a first year, both limits are reduced proportionately. A six-month period gives a lower limit of £25,000 and an upper limit of £125,000.

Worked example: a six-month period

A company has taxable profits of £60,000 in a six-month period and no associated companies.

  • Tax at 25%: £15,000
  • Marginal relief: 3/200 x (£125,000 - £60,000) = £975
  • Corporation Tax due: £14,025

In a 12-month year, £60,000 would have sat comfortably near the bottom of the band. Over six months it is the equivalent of £120,000 a year, which is why short periods deserve a separate calculation.

Where more than one financial year's rate applies within your accounting period, GOV.UK says to work out how many days each rate applied and then work out the tax due for each. The ATT applied this to the introduction of the new rates. A period of 1 January to 31 December 2023 was split into 1 January to 31 March 2023, taxed at 19% under the old rules, and 1 April to 31 December 2023, which was 275 days. For that second part the limits were time-apportioned to £37,671 and £187,841 (275/365 of each limit). That transition is now history, but the method shows how the limits are always tied to the length of the period.

Checking your own figure

HMRC provides a Marginal Relief calculator for profits from 1 April 2023. You enter your taxable profits, the length of your accounting period, the number of associated companies and details of any distributions from unrelated companies. It is a sensible check on any figure your accountant or software produces.

You claim marginal relief through the Company Tax Return. The CT600 has specific boxes for the calculation, and accounting software or your accountant should identify whether you qualify.

When the tax is due

The payment date depends on when your accounting period ends, and larger companies may have to pay in quarterly instalments instead of making a single payment. For periods beginning on or after 1 April 2023, the test for quarterly instalments counts associated companies rather than 51% group companies, and the number is taken at the start of the accounting period. Whether instalments apply to you, and the exact dates, should be confirmed against HMRC's current guidance for your company before you rely on them.

If your profits are close to a limit, it is worth producing a profit forecast during the year. Underpaying tax attracts interest, and the effect of associated companies on the limits can mean a bill higher than the previous year's, even on similar profits.

Frequently Asked Questions

What are the Corporation Tax rates in 2026?

The small profits rate is 19% for profits of £50,000 or less, and the main rate is 25% for profits above £250,000. Between those figures, marginal relief reduces the 25% charge. HMRC's rates table shows the same figures for Corporation Tax years starting 1 April 2023 to 2026.

Can every company claim marginal relief?

No. Non-UK resident companies and close investment holding companies cannot, and neither can a company whose profits, including distributions from unrelated companies, go over the upper limit.

How do associated companies affect the thresholds?

Both limits are divided by the number of associated companies, including your own. With four companies in total, the limits are £12,500 and £62,500.

Are the thresholds reduced for short accounting periods?

Yes. They are reduced in proportion to the length of the period, so a six-month period has limits of £25,000 and £125,000.

How can a company reduce its bill when profits fall in the band?

Anything that legitimately reduces taxable profit is worth more inside the band, because the top slice is effectively taxed at 26.5%. Employer pension contributions, timing of expenditure, capital allowances and qualifying charitable donations are the usual candidates. Each has wider consequences, so take advice first.

Where Deplexify fits

If you run a limited company and want the accounts and Corporation Tax computation handled, Deplexify offers accounts and tax for UK contractors and businesses, including contractors, landlords and charities.

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