Marginal Relief Calculator

A marginal relief calculator works out how much extra corporation tax your company owes when its profit sits between £50,000 and £250,000. It also tells you your true effective tax rate — not just the headline percentage.

This tool is built for UK limited company directors, accountants, bookkeepers, and finance teams. If your company’s profit falls anywhere near the £50,000–£250,000 band, this calculator matters to you.

Marginal relief exists because HM Revenue & Customs (HMRC) doesn’t want companies to face a sudden tax jump the moment they cross £50,000 in profit. Instead, the tax rate rises gradually — like a ramp instead of a cliff. Understanding exactly how that ramp works can save your business real money, especially if you’re close to either threshold.

This guide explains what marginal relief is, how to calculate it by hand, how associated companies change your numbers, and how it connects to other tax decisions like salary versus dividends and pension planning.

What Is Marginal Relief and Why Does It Exist?

Marginal relief is a tax reduction that smooths the jump between the UK’s two corporation tax rates. Small companies pay 19%. Large companies pay 25%. Marginal relief tapers the rate between them.

Without marginal relief, a company earning £50,001 in profit would suddenly pay 25% tax on its entire profit, instead of 19%. That single extra pound would cost thousands in additional tax. HMRC calls this a “cliff-edge” problem.

Marginal relief prevents that cliff. It lets the tax rate climb slowly from 19% to 25% as profit rises from £50,000 to £250,000, so the increase feels proportional rather than sudden.

Who Does Marginal Relief Actually Affect?

Marginal relief only applies to companies with profits between £50,000 and £250,000 in a 12-month accounting period. Outside that band, the rules are simple.

• Profit at or below £50,000: You pay the small profits rate of 19%. No marginal relief needed.
• Profit between £50,000 and £250,000: You pay 25% but claim marginal relief, which lowers your effective rate.
• Profit at or above £250,000: You pay the full 25% main rate. Marginal relief no longer applies.

These thresholds shrink if your company has “associated companies” — more on that below.

Current Corporation Tax Rates and Thresholds (2025/26)

These figures are correct for the 2025/26 tax year. Corporation tax rates and thresholds can change with each Budget, so always check current HMRC guidance before filing.

What Is the Marginal Relief Fraction?

The Marginal Relief Fraction is a standard number HMRC publishes to calculate the relief. It’s currently set at 3/200, which equals 0.015.

This fraction isn’t arbitrary. HMRC calculates it from the gap between the two tax rates and the width of the profit band between £50,000 and £250,000. It has stayed at 3/200 since the tiered system began in April 2023.

A Short History: Why This System Exists

Before April 2023, the UK had a single flat corporation tax rate of 19% for every company, regardless of size. There was no marginal relief because there was nothing to taper between.

From April 2023, the government reintroduced a tiered structure last seen in the early 2010s. Small companies stayed at 19%, larger ones moved to 25%, and marginal relief returned to bridge the gap.

If your accountant or older guidance mentions a flat 19% rate for all companies, that information predates April 2023 and no longer applies.

How to Calculate Marginal Relief Step by Step

You don’t need special software to work out marginal relief. The formula has four parts.

Step 1: Confirm your profit falls in the marginal band. It must sit between £50,000 and £250,000 (adjusted for associated companies, covered below).

Step 2: Calculate tax at the main rate. Multiply your total profit by 25%.

Step 3: Calculate the relief. Use this formula:

Marginal Relief = (Upper Limit − Profit) × (Basic Profit ÷ Profit) × 3/200

For most companies with no ring-fenced profits, this simplifies to:

Marginal Relief = (£250,000 − Profit) × 3/200

Step 4: Subtract the relief from the main-rate tax. This gives your final corporation tax bill.

Worked Example: Marginal Relief on £120,000 Profit

Let’s walk through a real company with £120,000 in taxable profit and no associated companies.

Step 1: £120,000 sits between £50,000 and £250,000, so marginal relief applies.

Step 2: Tax at the main rate: £120,000 × 25% = £30,000

Step 3: Marginal relief: (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950

Step 4: Final corporation tax: £30,000 − £1,950 = £28,050

Effective tax rate: £28,050 ÷ £120,000 = 23.4%

Notice the effective rate (23.4%) sits between the small profits rate (19%) and the main rate (25%) — exactly what marginal relief is designed to do.

Common Calculation Mistakes

• Applying 25% to the whole profit without checking for relief. This overstates the tax bill for any company between £50,000 and £250,000.
• Forgetting to adjust thresholds for associated companies. This is the single most common error accountants see.
• Assuming marginal relief only matters just above £50,000. It applies across the entire band, though the relief shrinks as profit rises toward £250,000.
• Mixing up ring-fenced (oil and gas) profits with standard profits. Ring-fenced profits use a different fraction (11/400) and different rates.

What Counts as an Associated Company? (The Control Test Explained)

The £50,000 and £250,000 thresholds aren’t fixed. They shrink if your company has “associated companies” — and this catches out more businesses than most people expect.

A company is associated with yours if one of you controls the other, or if the same person (or group of people) controls both. HMRC calls this the control test.

Control usually means owning more than 50% of the shares or voting rights. But control can also come from loan arrangements, rights to profits, or rights on winding up the company.

The Family Attribution Rule

This is where many directors get caught off guard. HMRC can attribute a spouse’s or close relative’s shareholding to you when testing for control, if there’s evidence of financial interdependence between the companies.

For example, if you own 100% of Company A and your spouse owns 100% of Company B, HMRC may treat these as associated companies if there’s substantial commercial interlinking — shared customers, shared staff, or cross-funding, for instance.

How Associated Companies Change the Thresholds

Each associated company divides your thresholds by the total number of companies (including your own). The formula is:

Adjusted Lower Limit = £50,000 ÷ Number of Associated Companies Adjusted Upper Limit = £250,000 ÷ Number of Associated Companies

Worked Example: Three Associated Companies

Imagine a director controls three active companies, each with its own profit.

With three associated companies (including the one being taxed), the thresholds divide by 3:

• Adjusted lower limit: £50,000 ÷ 3 = £16,667
• Adjusted upper limit: £250,000 ÷ 3 = £83,333

If one of those companies now earns £60,000 profit, it no longer qualifies for the small profits rate at all — it falls straight into the marginal relief band, because £60,000 is well above the new £16,667 lower limit.

Without checking for associated companies, this director might have assumed £60,000 profit still sat safely under the standard £50,000 threshold’s protection. It doesn’t, once the divisor applies.

Pro tip: If you control multiple companies, always calculate your adjusted thresholds before estimating your tax bill. This single step prevents the most common marginal relief miscalculation.

Marginal Relief vs Marginal Rate vs Effective Rate: Frequently Confused Terms

These three terms sound similar but mean different things. Mixing them up leads to real tax-planning mistakes.

Why Your Marginal Rate Spikes Inside the Taper Zone

Here’s the part that surprises most directors: while your effective rate rises gradually, your marginal rate on each extra pound of profit inside the £50,000–£250,000 band is actually 26.5% — higher than the 25% main rate.

This happens because every extra pound of profit does two things at once: it gets taxed at 25%, and it shrinks your marginal relief slightly. Combined, that extra pound effectively costs 26.5% in tax.

This is why earning slightly more profit inside the taper zone can feel disproportionately expensive, even though your average effective rate never exceeds 25%.

Strategies to Reduce Your Marginal Relief Exposure

Since the marginal rate inside the taper zone runs higher than either headline rate, many companies actively plan around it.

Pension Contributions

Employer pension contributions are a deductible business expense. Increasing them reduces taxable profit, which can pull a company below £250,000 or even below £50,000, cutting the effective marginal rate.

Timing of Accounting Periods

Some businesses adjust their accounting period length or year-end date to manage which 12-month window captures a large one-off profit spike, spreading profit more evenly across periods.

Salary vs Dividend Interaction

How you extract profit from the company — as salary, dividends, or a mix — doesn’t change corporation tax directly, but salary payments (including employer pension contributions) reduce the company’s taxable profit before marginal relief is even calculated.

Because salary and pension contributions lower the profit figure that marginal relief is calculated against, they can indirectly reduce your corporation tax exposure while also shifting personal tax liability elsewhere. This is exactly why a joined-up view — corporation tax plus personal tax — produces better decisions than looking at either in isolation.

Marginal Relief and the Surcharge Shield (For High Earners)

Directors who also cross personal income tax thresholds face a second layer of tapering, separate from corporation tax marginal relief but built on the same “no cliff-edge” principle.

The “surcharge shield” concept ensures that the tax increase from crossing a personal threshold can never exceed the amount of income that pushed you over it. In plain terms: the extra tax you pay is capped at the size of the excess income itself, so you can never take home less overall from earning slightly more.

This matters because it protects you from the most extreme edge case — where crossing a threshold by a small amount could theoretically cost you more in tax than you gained in income. The cap prevents that from happening.

The 60% Tax Trap Explained

Search for “60% tax trap” and you’ll find one of the most misunderstood zones in UK personal tax — and it connects directly to how directors should plan salary, dividends, and pension contributions alongside corporation tax.

The £100,000–£125,140 Zone

Between £100,000 and £125,140 of personal income, you lose £1 of your Personal Allowance for every £2 earned above £100,000. Combined with 40% Income Tax, this creates an effective marginal rate of 60% on income in this band.

The £60,000–£80,000 Zone (Child Benefit)

The High Income Child Benefit Charge (HICBC) claws back Child Benefit once a partner’s adjusted net income exceeds £60,000, with the charge fully removing the benefit by £80,000. For families with multiple children, this can also push the effective marginal rate toward or above 60% on income in that band.

Pension Contributions to Avoid the Child Benefit Charge

Because HICBC uses “adjusted net income” — income after pension contributions — many higher earners make additional pension contributions specifically to bring their adjusted net income back under £60,000, fully preserving Child Benefit while also building retirement savings.

Common misconception corrected: People often assume Child Benefit is simply “means-tested away.” In reality, you can keep claiming it in full and simply repay the charge through Self Assessment, or elect not to receive payments at all if you’d rather avoid the paperwork.

Common Misconceptions About Marginal Relief

“Marginal relief only applies just above £50,000.” False. It applies across the entire £50,000–£250,000 band (adjusted for associated companies), though the relief amount shrinks as profit rises.

“Marginal relief is free money that reduces your total tax to nothing.” False. It only softens the rate increase between 19% and 25%. You still pay meaningfully more tax at £200,000 profit than at £60,000 profit.

“If I have one associated company, nothing changes.” False. Even a single associated company halves both thresholds, which can push you into — or entirely through — the marginal relief band.

“This is the same system that existed before 2023.” False. The flat 19% rate applied to all companies before April 2023. The tiered system with marginal relief is a return to a structure last used over a decade earlier.

Sole Trader vs Limited Company: Side-by-Side Comparison

Whether marginal relief even applies to you depends on your business structure. Sole traders pay Income Tax on profit; only limited companies pay corporation tax and face marginal relief.

These figures are illustrative estimates for comparison purposes only, based on 2025/26 rates. Your actual liability depends on allowances, National Insurance class, expenses, and how profit is extracted from a company.

When Should I Incorporate My Sole Trader Business?

Many advisers point to somewhere around £30,000–£40,000 profit as the zone where incorporating starts to produce a meaningful tax saving, once you also account for dividend extraction costs — but this “pivot point” shifts depending on your personal income needs, whether you need to draw out all the profit, and your appetite for the extra admin of running a limited company.

Glossary: Key Terms Explained

• HMRC — HM Revenue & Customs, the UK’s tax authority responsible for collecting corporation tax and enforcing the rules described in this guide.
• Corporation Tax Act 2010 (CTA 2010) — The primary UK legislation (sections 18–23) that sets out how marginal relief and the associated companies rules operate.
• Marginal Relief Fraction — The standard multiplier (currently 3/200) HMRC publishes each year to calculate relief.
• Associated Company — A company under common control with yours, which reduces your profit thresholds.
• Small Profits Rate — The 19% rate for companies with profit at or below £50,000.
• Main Rate — The 25% rate for companies with profit at or above £250,000.
• HICBC — High Income Child Benefit Charge, a clawback of Child Benefit for higher earners.
• Adjusted Net Income — Total taxable income after certain deductions, including pension contributions, used to test HICBC and Personal Allowance taper thresholds.

How This Differs From VAT and Personal Income Tax

Marginal relief is exclusive to corporation tax. It has no connection to VAT, which is a transaction-based tax on sales, or to Income Tax, which taxes individuals rather than companies. A limited company can face marginal relief on its corporation tax bill while its director separately navigates the 60% Income Tax trap on personal income — two entirely different systems intersecting through the same business.

Composite Case Study: A £120,000 Profit Company With Two Associated Companies and Two Children

Here’s how these rules combine in practice for one real-world-style scenario.

The situation: A director runs a limited company with £120,000 profit. She also controls a second, smaller company (making them associated companies). She has two children and a partner with income above £60,000.

Step 1 — Adjust the thresholds. With 2 associated companies: lower limit = £25,000, upper limit = £125,000.

Step 2 — Check the band. £120,000 sits just under the new £125,000 upper limit, so marginal relief still applies, but barely.

Step 3 — Calculate tax. Main rate tax: £120,000 × 25% = £30,000. Relief: (£125,000 − £120,000) × 3/200 = £75. Final corporation tax: £29,925 — far higher than the earlier example because the associated company shrank her relief dramatically.

Step 4 — Personal tax layer. If she draws a salary and dividends that push her partner’s adjusted net income above £60,000, the family also faces HICBC on their Child Benefit, compounding the overall household tax burden.

The takeaway: A single associated company turned what looked like a moderate £1,950 relief (from the earlier £120,000 example) into just £75 — a difference of nearly £1,900 — purely because of the control test. This is exactly why checking associated company status before estimating tax is essential.

Frequently Asked Questions

What is marginal relief in corporation tax?

Marginal relief is a reduction that tapers the corporation tax rate gradually from 19% to 25% as profit rises from £50,000 to £250,000, avoiding a sudden jump.

How many associated companies affect marginal relief?

Any number of associated companies affects it. Each one divides your £50,000 and £250,000 thresholds by the total number of companies under common control, including your own.

Is it better to take salary or dividends in the UK?

It depends on your total income, National Insurance position, and corporation tax band. Salary reduces company profit (and therefore corporation tax), while dividends are paid from post-tax profit but often taxed more favourably at the personal level.

At what profit level should I incorporate?

Many sole traders start seeing a tax advantage from incorporating around £30,000–£40,000 profit, though the exact point depends on your personal circumstances and how much profit you need to withdraw.

What income triggers the child benefit tax charge?

HICBC starts clawing back Child Benefit once the higher earner’s adjusted net income passes £60,000, removing the benefit entirely by £80,000.

Does marginal relief apply to every company?

No. It only applies to companies with profits between the adjusted lower and upper limits, and it doesn’t apply to ring-fenced (oil and gas) profits, which use different rates and a different fraction.

Can marginal relief change every tax year?

Yes. HMRC can adjust the thresholds, rates, and the Marginal Relief Fraction in future Budgets. Always confirm the current year’s figures before filing.

Disclaimer and Accuracy Note

This guide reflects UK corporation tax rates and thresholds correct as of the 2025/26 tax year, based on the Corporation Tax Act 2010 and current HMRC guidance. Tax rules change frequently.

This article is for general information only and does not constitute tax, legal, or financial advice. Always confirm figures with HMRC directly or consult a qualified accountant before making tax decisions, especially where associated companies or personal thresholds are involved.

Conclusion

Marginal relief exists to stop UK companies from facing a sudden tax jump between £50,000 and £250,000 profit. The relief is calculated using the Marginal Relief Fraction of 3/200, and it shrinks the closer your profit gets to £250,000.

The single biggest factor most directors overlook is associated companies — even one associated company can cut your thresholds in half and dramatically change your final tax bill, as shown in the worked examples above.

Because corporation tax marginal relief interacts with personal tax traps like the 60% zone and HICBC, the smartest planning treats them as one connected system rather than separate problems.

Use the marginal relief calculator above to run your own numbers instantly, test different associated company scenarios, and see exactly how close you are to the next threshold.