Marginal relief
Marginal relief reduces corporation tax for companies with profits between £50,000 and £250,000. It smooths the step between the 19% small profits rate and the 25% main rate, creating an effective marginal rate of 26.5%.
How it works
Without marginal relief, a company making £50,001 would jump straight from 19% to 25% on all its profit. Instead, the main rate is applied to the whole profit and then reduced by a formula: the marginal relief fraction of 3/200 multiplied by the difference between the upper limit and the company's augmented profits, scaled by the ratio of taxable to augmented profits.
The consequence is an effective rate of 26.5% on each pound earned between the two limits — higher than the main rate itself. That is why a company sitting just above £50,000 gets unusually good value from a pension contribution, a capital allowance claim or timing a purchase before the year end.
Augmented profits include dividends received from companies outside the group, so investment income can quietly push a company into the marginal band. Both limits are also divided by the number of associated companies and proportioned for accounting periods shorter than twelve months.
Close investment-holding companies are excluded from the small profits rate and marginal relief altogether and pay the main rate on all profits.
Worked example (2026/27)
£100,000 taxable profit with no associated companies
| Main rate at 25% | £25,000 |
|---|---|
| Marginal relief (3/200 × £150,000) | −£2,250 |
| Corporation tax payable | £22,750 |
| Effective rate | 22.75% |
Who this affects
- Companies with profits between £50,000 and £250,000
- Directors with more than one company, where the limits are divided
- Companies receiving dividends from outside a group, which raise augmented profits
- Businesses considering a pension contribution or equipment purchase before the year end
Common mistakes
- Forgetting to include dividends received when testing against the limits
- Using the full limits in a short accounting period
- Assuming the marginal rate is 25% when it is effectively 26.5%
Frequently asked questions
What is marginal relief?
A reduction in corporation tax for companies with profits between £50,000 and £250,000, bridging the small profits and main rates.
What is the effective marginal rate?
26.5% on each additional pound of profit within the marginal band, which is higher than the 25% main rate itself.
Do associated companies affect it?
Yes. Both profit limits are divided by the number of associated companies plus one, so relief can disappear entirely.
How do I reduce profit within the marginal band?
Employer pension contributions, capital allowance claims and correctly timed expenditure all reduce taxable profit, and relief in the marginal band is worth 26.5p in the pound.
Related terms
Work this out
Related reading
Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
Official sources
Not sure how this applies to your company? Get a fixed-fee quote.