How does marginal relief work between £50,000 and £250,000?

Marginal relief reduces the 25% main rate on profits between £50,000 and £250,000. Tax is calculated at 25% then reduced by 3/200 of the difference between the upper limit and profits, giving a 26.5% effective rate on profit inside the band.

On £100,000 of profit: 25% gives £25,000, then relief of 3/200 × (£250,000 − £100,000) = £2,250, so tax is £22,750, an average rate of 22.75%. On £150,000 the relief is £1,500 and tax is £36,000, an average of 24%.

Compare £50,000 profit taxed at 19%, which is £9,500, with £100,000 taxed at £22,750. The extra £50,000 of profit cost £13,250 in tax, which is the 26.5% marginal rate in plain figures.

Deductions are worth 26.5% here, so employer pension contributions, a director bonus, qualifying capital purchases and R&D claims all buy more relief than they would at 19%. Anything discretionary is usually better taken in a year where profit sits in the band.

Associated companies compress the band. With three associated companies the relief runs between £16,667 and £83,333 each, so a modest group can hit 26.5% far earlier than expected. Check association before splitting activities across companies.

Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.