Corporation Tax Rates 2026/27 and Marginal Relief: How to Calculate Your Company's Tax
Since April 2023, UK limited companies no longer pay one flat rate of Corporation Tax. Small profits are taxed at 19%, large profits at 25%, and everything in between gets marginal relief, a sliding reduction that is easy to get wrong by hand.
This guide explains the Corporation Tax rates for the financial year 2026 (1 April 2026 to 31 March 2027): how marginal relief is calculated, why the effective rate in the marginal band is really 26.5%, how associated companies and short accounting periods shrink the limits, how dividends received can push you into a higher rate, and where each figure goes on the CT600.
In one line: profits up to £50,000 pay 19%, profits over £250,000 pay 25%, and profits in between pay 25% minus marginal relief of (£250,000 − profits) × 3/200. Both limits are divided by the number of associated companies plus one and reduced for periods shorter than 12 months.
Corporation Tax Rates for 2026/27
Corporation Tax rates are set for each financial year, which runs from 1 April to 31 March. They are not set for your company's own accounting period. For the financial year 2026, the rates are unchanged from the previous three years:
| Augmented profits | Rate | How it works |
|---|---|---|
| £50,000 or less | 19% | Small profits rate |
| £50,001 to £250,000 | 25% less marginal relief | Effective rate between 19% and 25% |
| Over £250,000 | 25% | Main rate |
The limits apply to the company's augmented profits (explained below), not just its accounting profit. For most small companies with no dividends from other companies, augmented profits are simply the taxable total profits on the CT600.
Close investment-holding companies are an exception. They pay the main rate of 25% on all profits, whatever their size, and cannot claim the small profits rate or marginal relief.
Official source: GOV.UK — Rates and allowances: Corporation Tax.
How Marginal Relief Works
If your profits fall between the lower and upper limits, you first calculate tax at the main rate of 25%. Then you deduct marginal relief using this formula:
Marginal relief = (U − A) × N / A × 3/200
U = upper limit (£250,000, adjusted for associates and short periods)
A = augmented profits
N = taxable total profits
3/200 = the standard fraction (1.5%)
For most companies N and A are the same, so the formula simplifies to (£250,000 − profits) × 1.5%.
Example 1: profits of £100,000
| Tax at 25% on £100,000 | £25,000 |
| Less marginal relief: (£250,000 − £100,000) × 3/200 | (£2,250) |
| Corporation Tax payable | £22,750 |
| Effective rate | 22.75% |
Example 2: profits of £60,000
| Tax at 25% on £60,000 | £15,000 |
| Less marginal relief: (£250,000 − £60,000) × 3/200 | (£2,850) |
| Corporation Tax payable | £12,150 |
| Effective rate | 20.25% |
Example 3: profits of £150,000
| Tax at 25% on £150,000 | £37,500 |
| Less marginal relief: (£250,000 − £150,000) × 3/200 | (£1,500) |
| Corporation Tax payable | £36,000 |
| Effective rate | 24% |
The Hidden 26.5% Marginal Rate
The average rate in the marginal band climbs gradually from 19% to 25%. The rate on each extra pound of profit is higher than both: 26.5%.
That is because every additional £1 of profit is taxed at 25% and reduces your marginal relief by 1.5p. You can check this with Example 2 above: the first £50,000 at 19% is £9,500, and the next £10,000 at 26.5% is £2,650. That gives £12,150, exactly the same answer.
This matters for planning. If your profits are in the £50,000 to £250,000 band, a deductible expense, a pension contribution made by the company or a capital allowances claim saves tax at 26.5%, not 19% or 25%. Timing spending such as equipment purchases (claimed through the Annual Investment Allowance) can be worth more than many directors expect.
Only spend money for genuine business reasons. A tax saving of 26.5p in the pound still leaves the company 73.5p worse off for every pound it spends.
Associated Companies Reduce the Limits
The £50,000 and £250,000 limits are shared between associated companies. You divide each limit by the number of associated companies plus one (your own company).
| Associated companies | Lower limit | Upper limit |
|---|---|---|
| 0 | £50,000 | £250,000 |
| 1 | £25,000 | £125,000 |
| 2 | £16,667 | £83,333 |
| 3 | £12,500 | £62,500 |
| 4 | £10,000 | £50,000 |
Two companies are associated if one controls the other, or both are controlled by the same person or group of persons, at any time in the accounting period. Some companies are ignored when counting, including companies that were dormant throughout the period and certain passive holding companies. The rights of relatives and business partners are generally only taken into account where there is substantial commercial interdependence between the companies.
Example 4: one associated company, profits of £100,000
| Tax at 25% on £100,000 | £25,000 |
| Less marginal relief: (£125,000 − £100,000) × 3/200 | (£375) |
| Corporation Tax payable | £24,625 |
Compared with Example 1, the same profit costs £1,875 more in tax simply because the director owns a second company. For the full rules, see our guide to associated companies and Corporation Tax.
Short Accounting Periods
If your accounting period is shorter than 12 months (common in a company's first year, or after changing the year end), the limits are reduced in proportion to the number of days in the period.
For a 182-day period with no associated companies:
- Lower limit: £50,000 × 182 / 365 = £24,932
- Upper limit: £250,000 × 182 / 365 = £124,658
A company that makes £40,000 in that six-month period would not get the full small profits rate, even though £40,000 is well below £50,000. Instead it pays 25% less marginal relief: £10,000 − £1,270 = about £8,730.
Periods longer than 12 months work differently. A company cannot have a CT accounting period longer than 12 months, so an 18-month set of accounts is split into two returns: one for the first 12 months and one for the remaining 6. Each return has its own limits. See our guide on paying Corporation Tax for how this creates two payment deadlines.
Periods That Straddle 31 March
If your accounting period runs across 31 March (for example 1 January to 31 December 2026), it falls into two financial years. Profits are split between them by days, and each part is taxed at the rates and limits for its own financial year.
Because the rates and limits for financial years 2025 and 2026 are identical, the split makes no difference to the total tax for periods straddling 31 March 2026. However, the CT600 still shows each financial year separately, and HMRC expects the split to be shown correctly. If rates change in a future Budget, the split will affect the amount payable.
Augmented Profits and Dividends Received
The limits are tested against augmented profits: taxable total profits plus any exempt dividends (franked investment income) received from companies that are not 51% group companies. Dividends are not taxed themselves, but they can push the company into a higher band.
Example 5: profits of £100,000 plus £20,000 of dividends received
| Augmented profits (A) | £120,000 |
| Tax at 25% on taxable profits of £100,000 | £25,000 |
| Less marginal relief: (£250,000 − £120,000) × £100,000 / £120,000 × 3/200 | (£1,625) |
| Corporation Tax payable | £23,375 |
Without the dividends, the tax would be £22,750 (Example 1). So £20,000 of tax-free dividend income still increased the Corporation Tax bill by £625.
Two more things to know:
- If taxable profits are below £50,000 but augmented profits are above it, you cannot use the 19% rate. Marginal relief applies instead.
- If augmented profits exceed £250,000, no marginal relief is due, even if taxable profits are lower.
Franked investment income is reported in box 620 of the CT600.
Which CT600 Boxes Are Involved?
| Box | What it shows |
|---|---|
| 315 | Taxable total profits |
| 326 | Number of associated companies in the period |
| 327 / 328 | Associated companies in the first and second financial year, where the period straddles 31 March and the number changed |
| 329 | Tick if the company is entitled to the small profits rate or marginal relief |
| 330–345 | Financial year, profits chargeable, rate and tax for the first financial year (repeated for a second year if the period straddles 31 March) |
| 435 | Marginal relief |
| 440 | Corporation Tax chargeable after marginal relief |
| 620 | Franked investment income (feeds augmented profits) |
Common errors include leaving box 326 blank when the director owns other companies, ticking box 329 when profits are above the upper limit, and forgetting to reduce the limits for a short first period. HMRC can correct these, but the result is usually a higher bill plus interest. For a full walkthrough of the return, see What is a CT600 return?
Losses and Marginal Relief
Losses reduce the profits that marginal relief is based on. Carrying back a loss from a later year, or using brought-forward losses, can move a company from the marginal band down to the small profits rate. That means relief is effectively worth up to 26.5% on profits in the marginal band.
When deciding whether to carry a loss back or forward, compare the rate the profits would otherwise have paid in each year. Our guide to trading losses explains the options and the boxes involved.
Let Your Software Do the Calculation
Marginal relief is simple for a single 12-month period with no associates. The calculation becomes much harder once you add a short period, a period that straddles 31 March, associated companies or dividends received. These are also where the most mistakes happen.
WeFile works out your Corporation Tax automatically. Enter your profit and loss account and balance sheet (or import them from Xero, QuickBooks or FreeAgent) and the number of associated companies. WeFile then applies the small profits rate or marginal relief, pro-rates the limits for short periods, splits the period across financial years, includes franked investment income in augmented profits, and fills in boxes 326 to 440 on the CT600. You can file the CT600 with HMRC and your accounts with Companies House from the same filing.
For a quick estimate first, try our free Corporation Tax calculator.
This guide is general information based on the Corporation Tax rates and HMRC guidance in force in October 2026 and is not tax advice. Rates can change at future Budgets. If your situation is complex, speak to a qualified accountant.
Frequently Asked Questions
What is the Corporation Tax rate for 2026/27?
19% on profits up to £50,000, 25% on profits over £250,000, and 25% less marginal relief in between. These rates apply to the financial year starting 1 April 2026.
Do I have to claim marginal relief?
It is shown on the CT600 as part of the tax calculation. If you file your own return, the relief is only given if it is calculated and entered correctly, so it is worth checking that your software does it for you.
Is marginal relief the same as the small profits rate?
No. The small profits rate is a flat 19% for profits up to the lower limit. Marginal relief is a reduction in the 25% charge for profits between the two limits.
Does a dormant company count as associated?
Not if it was dormant for the whole accounting period. A dormant company that started trading part-way through the period does count.
Why is my effective rate higher than 19% when my profit is under £50,000?
Your limits have probably been reduced, either because you have associated companies or because your accounting period was shorter than 12 months. Dividends received from other companies can also push augmented profits over the limit.
Do the rates change for periods straddling 31 March 2026?
No. Financial years 2025 and 2026 have the same rates and limits, so the total tax is the same. The CT600 still shows each financial year separately.