What Is Marginal Relief?
UK Corporation Tax Guide 2025/26
If your UK limited company’s taxable profits fall anywhere between £50,000 and £250,000, marginal relief is one of the most important corporation tax concepts you need to understand. Yet many directors either do not know it exists or are unclear about how it is calculated. This guide explains marginal relief in plain English, with worked examples and a clear explanation of when it applies.
What this guide covers
What marginal relief is and why it was introduced · The HMRC formula explained simply · A worked example at £120,000 profit · How associated companies affect the thresholds · How to calculate your exact marginal relief in seconds
What Is Marginal Relief?
Marginal relief is a mechanism that prevents a sudden jump in corporation tax when profits cross the £50,000 threshold. Without it, a company earning £50,001 would pay 25% on its entire profit — a significant jump from the 19% Small Profits Rate on £50,000.
Instead, marginal relief gradually increases the effective corporation tax rate from 19% to 25% as profits rise through the £50,000 to £250,000 band. The relief was reintroduced in April 2023 when the corporation tax Main Rate increased from 19% to 25% — its first appearance since the unified rate was introduced in 2015.
The Marginal Relief Thresholds 2025/26
| Profit Level | Rate Applied | Marginal Relief? |
|---|---|---|
| Up to £50,000 | 19% (Small Profits Rate) | No |
| £50,001 – £249,999 | 19%–25% (graduated) | Yes — applies automatically |
| £250,000 and above | 25% (Main Rate) | No |
The HMRC Marginal Relief Formula
The official HMRC formula for calculating marginal relief is:
Marginal Relief = (3/200) × (Upper Limit − Augmented Profits)
Where: Upper Limit = £250,000 (adjusted for associated companies and short accounting periods). Augmented Profits = taxable profits plus dividends received from non-group companies (usually equal to taxable profits for most companies).
This relief is then deducted from the 25% Main Rate calculation to give your actual corporation tax bill.
Worked Example — Marginal Relief on £120,000 Profit
Consider a UK limited company with £120,000 taxable profit and no associated companies, for a standard 12-month accounting period.
| Calculation Step | Working | Result |
|---|---|---|
| Apply 25% Main Rate | £120,000 × 25% | £30,000 |
| Calculate marginal relief | (3/200) × (£250,000 − £120,000) | £1,950 |
| Deduct relief from tax | £30,000 − £1,950 | £28,050 |
| Effective rate | £28,050 ÷ £120,000 | 23.375% |
Without marginal relief, this company would pay £30,000. With marginal relief, it pays £28,050 — saving £1,950. The effective rate of 23.375% sits neatly between 19% and 25%, reflecting the gradual nature of the relief.
Calculate Your Exact Marginal Relief
Use our free marginal relief calculator to see your precise corporation tax bill with the exact relief amount — including associated companies adjustment.
Calculate Marginal Relief → →How Associated Companies Affect Marginal Relief
If your company has associated companies — other companies under common control, typically through a shared director or shareholder — the £50,000 and £250,000 thresholds are divided by the total number of associated companies plus one.
| Number of Associated Companies | Lower Threshold | Upper Threshold |
|---|---|---|
| None (just your company) | £50,000 | £250,000 |
| 1 associated company | £25,000 | £125,000 |
| 2 associated companies | £16,667 | £83,333 |
| 3 associated companies | £12,500 | £62,500 |
⚠ Associated companies catch many directors out
If you are a director or shareholder of more than one company, all those companies may count as associated. This can dramatically lower the thresholds and push your company into the marginal relief band — or even into the Main Rate — sooner than expected. Your accountant should review this if you operate multiple companies.
Marginal Relief and Short Accounting Periods
For accounting periods shorter than 12 months, both the lower and upper thresholds are reduced proportionally. For a six-month accounting period, the limits become £25,000 and £125,000. The marginal relief calculator handles this automatically when you select your accounting period length.
Reducing Your Bill in the Marginal Relief Band
For companies in the marginal relief band, the effective marginal rate on each additional pound of profit is approximately 26.5% — higher than either the 19% or 25% headline rates. This makes the marginal relief band a particularly important area for tax planning.
Strategies that reduce taxable profit below the £250,000 upper threshold — such as employer pension contributions, bringing forward capital expenditure, or timing of income — can be especially valuable for companies in this band. Use our corporation tax calculator to model the impact of different profit levels, and our limited company tax calculator for a complete view including dividend tax and salary costs.
Final Thoughts
Marginal relief is a valuable but often overlooked aspect of UK corporation tax for companies with profits in the £50,000–£250,000 range. Understanding how it works — and how to calculate it — helps directors plan their tax position accurately and make informed decisions about salary, pension contributions, and dividend timing.
Use our free marginal relief calculator to see your exact bill and relief amount instantly. All rates are sourced from HMRC’s official marginal relief guidance.