What Is Marginal Relief? A Simple Guide to the UK’s In-Between Corporation Tax Rate

If your company’s taxable profits fall between £50,000 and £250,000, you may have come across the term marginal relief when reading about Corporation Tax. It can sound complicated, but the basic idea is straightforward: it reduces the Corporation Tax bill for eligible companies in this profit range, smoothing the transition between the small profits rate and the main rate.

This guide explains what marginal relief is, who may qualify, how the calculation works and where it appears on a Company Tax Return. The figures below reflect the rates shown by HMRC for financial years starting 1 April 2026. Your company’s accounting period and circumstances can affect the calculation.

Important: This article provides general information only, not tax advice. Check the current HMRC guidance on marginal relief and speak to an appropriately qualified professional about your company’s situation.

What is marginal relief?

Marginal relief is a reduction to Corporation Tax for eligible companies whose profits fall between the relevant lower and upper limits. It helps prevent an abrupt jump from the 19% small profits rate to the 25% main rate.

For financial years starting on 1 April 2026, HMRC lists these standard rates and limits:

• Small profits rate: 19% for taxable profits under £50,000.
• Main rate: 25% for taxable profits over £250,000.
• Marginal relief range: profits between £50,000 and £250,000, subject to the rules.
• Standard marginal relief fraction: 3/200.

These are the standard limits. They may be reduced for a short accounting period or where a company has associated companies. The GOV.UK Corporation Tax rates and allowances page provides the official rates.

Marginal relief is not a separate tax rate or a penalty. A company in the relevant range calculates its Corporation Tax at the main rate and deducts any marginal relief due. The result is a gradual change in the effective rate across the range.

Who may qualify?

A company may be eligible for marginal relief if its profits fall between the applicable lower and upper limits and it meets the relevant conditions. The standard limits for a 12-month accounting period are £50,000 and £250,000, but they are not necessarily the limits that apply to every company.

For example, marginal relief is not available to certain companies, including non-UK-resident companies and close investment-holding companies. HMRC’s guidance also sets out circumstances where profits, including certain distributions, affect eligibility.

Do not assume that the standard thresholds automatically apply to your business. Check the rules for your accounting period and circumstances, or seek professional help if you are unsure.

How does the calculation work?

The calculation uses a company’s taxable total profits and augmented profits. Augmented profits can include certain distributions as well as taxable profits, so they are not always the same figure.

For a financial year with the standard fraction, HMRC’s formula is:

Marginal relief = F × (U − A) × (N ÷ A)

Where:

• F is the marginal relief fraction (3/200 for financial years starting 1 April 2026).
• U is the upper limit, adjusted where relevant.
• A is augmented profits.
• N is taxable total profits.

The resulting relief is deducted from Corporation Tax calculated at the main rate. In a straightforward example where augmented profits equal taxable total profits, the N ÷ A part of the calculation is 1.

Worked example: illustrative figures only

Assume a UK-resident company has:

• A 12-month accounting period wholly within a financial year starting 1 April 2026.
• Taxable total profits of £100,000.
• Augmented profits of £100,000.
• No associated companies and no other relevant adjustments.

The illustrative calculation is:

1. Corporation Tax at the main rate: £100,000 × 25% = £25,000
2. Marginal relief: 3/200 × (£250,000 − £100,000) × (£100,000 ÷ £100,000) = £2,250
3. Corporation Tax after marginal relief: £25,000 − £2,250 = £22,750

In this example, the company’s Corporation Tax is £22,750, equivalent to 22.75% of its taxable profits.

This example is simplified. It is not a calculation for your company. A different accounting period, augmented profits, associated companies or other circumstances may change the result. Accounting periods that cross a financial-year boundary may also require separate treatment for each part of the period.

Why associated companies matter

If a company has associated companies, the lower and upper limits are reduced. In general, the limits are divided by the total number of companies counted, including the company itself.

For example, if there are three other associated companies, there are four companies in total for this illustration:

• Lower limit: £50,000 ÷ 4 = £12,500
• Upper limit: £250,000 ÷ 4 = £62,500

This can mean a company reaches the main rate at a lower profit level than it would if it had no associated companies.

HMRC’s definition considers whether companies are under common control or one controls another. An associated company may be counted even if it was associated for only part of an accounting period, although specific rules and exceptions apply. Read HMRC’s associated-company guidance alongside the marginal relief guidance.

Where does marginal relief appear on the CT600?

The CT600 is the Company Tax Return used to report Corporation Tax information to HMRC. HMRC’s Company Tax Return guide explains the return and its boxes.

In broad terms, the return includes:

• Box 329: ticked if the company is chargeable at the small profits rate or entitled to marginal relief.
• Box 326: the number of associated companies for relevant accounting periods; the company itself is not included in the figure entered.
• Boxes 327 and 328: used instead of box 326 in certain cases involving an accounting period that spans financial years.
• Box 435: the amount of marginal relief due.
• Box 440: Corporation Tax chargeable after marginal relief is deducted from the Corporation Tax calculated in box 430.

These are general signposts, not instructions for completing your specific return. The correct entries depend on your company and accounting period.

Common misconceptions

• “Marginal relief is an extra tax.” It is a relief that can reduce Corporation Tax for eligible companies in the relevant profit range.
• “Every company with profits between £50,000 and £250,000 qualifies.” Associated companies, accounting-period length, company type and other rules can change the thresholds or affect eligibility.
• “The £50,000 and £250,000 limits always apply in full.” They are reduced in certain circumstances, including for associated companies and short accounting periods.
• “Taxable profits and augmented profits are always the same.” They can differ, which may affect the calculation.

For a broader overview of Corporation Tax rates, see our UK business tax rates article. If you are also preparing company accounts, read our guide to iXBRL filing and the Companies House software changes.

When might it be helpful to get support?

Consider asking an appropriately qualified professional if your profits are close to either limit, your accounting period is shorter than 12 months or crosses a financial year, or your company has associated companies or relevant distributions. It may also be useful to get help if you are uncertain about what information belongs on the CT600.

Your Business Admin, the trading name of NP UK Corporate Services Ltd, supports businesses with corporate services and administration. If you need assistance understanding what support may be appropriate, contact our team and we can connect you with the relevant team member. Ask about the service scope, pricing and likely timelines for your requirements.

Frequently asked questions

What is marginal relief?

It is a Corporation Tax relief that may reduce the tax bill of an eligible company whose profits fall between the applicable lower and upper limits. It smooths the transition between the small profits rate and the main rate.

Do I qualify for marginal relief?

You may qualify if your profits fall within the relevant limits and your company meets the conditions. The limits may be reduced for associated companies or a short accounting period, and some companies cannot claim. Check the HMRC guidance for the rules.

How is marginal relief calculated?

HMRC’s formula uses the marginal relief fraction, upper limit, augmented profits and taxable total profits. The relief is deducted from Corporation Tax calculated at the main rate. The worked example above is illustrative; your company’s calculation may differ.

What are associated companies?

Broadly, these are companies where one controls another, or both are controlled by the same person or people. The detailed rules include specific conditions and exceptions. Associated companies can reduce the Corporation Tax thresholds used for your company.

Can Your Business Admin help, and what will it cost?

Your Business Admin provides corporate services and administration support. The service scope, price and likely timeframe depend on your requirements. Contact our team to discuss what you need and to be connected with the appropriate team member. This article is general information, not tax advice.