The rates and limits
Corporation tax works by financial year, which runs from 1 April to 31 March. The rates have been the same for every financial year from 1 April 2023, and Finance Act 2026 set them again for the year starting 1 April 2027:
| Augmented profits | What the company pays |
|---|---|
| £50,000 or less | The small profits rate, 19% |
| £50,001 to £250,000 | The main rate, 25%, less marginal relief |
| Over £250,000 | The main rate, 25% |
The £50,000 is the lower limit and the £250,000 the upper limit. Both are for a 12-month accounting period with no associated companies.
Augmented profits
The limits are tested against augmented profits, not taxable profit. Augmented profits are the company’s taxable profit plus any dividends it receives from companies outside its own 51% group. Those dividends aren’t taxed, but they count when deciding the rate, so they can move a company from the small profits rate into marginal relief, or reduce the relief it gets.
How marginal relief is worked out
A company between the limits works out 25% of its taxable profit, then takes off marginal relief. The formula, from section 18D of the Corporation Tax Act 2010, is:
3/200 × (upper limit − augmented profits) × taxable profit ÷ augmented profits
The 3/200 is called the standard fraction. When there are no dividends received, taxable profit and augmented profits are the same, so the last part of the formula cancels out and the relief is simply 3/200 of the gap between the profit and £250,000.
The effect is that the rate on each extra pound of profit between £50,000 and £250,000 is 26.5%, higher than the 25% main rate. That marginal rate is worth knowing if you’re deciding whether to spend before the year end, or how much salary to take.
A worked example
A company makes £100,000 of taxable profit in the year to 31 March 2026, with no dividends received and no associated companies:
- 25% of £100,000 is £25,000
- marginal relief is 3/200 × (£250,000 − £100,000) = £2,250
- the tax is £25,000 − £2,250 = £22,750, an effective rate of 22.75%
HMRC’s own example in its manual (CTM03925) has £90,000 of profit and £8,000 of dividends received for a year to 30 September 2026. The dividends make augmented profits £98,000, so the relief is 3/200 × £152,000 × £90,000 ÷ £98,000, which is £2,093.88. HMRC rounds that to £2,094 in its example; our calculator works to the penny.
What cuts the limits
- Associated companies. Both limits are divided by one plus the number of associated companies. With one, they become £25,000 and £125,000. See associated companies explained.
- A short accounting period. For a period of less than 12 months, the limits are cut in proportion to the days the period has in each financial year. A period of exactly 12 months keeps the full limits even if it has 366 days.
Some companies can’t use the small profits rate or marginal relief at all, including close investment-holding companies, and companies with ring fence profits from oil and gas have their own rates.