Guide · worked example

The corporation tax band nobody puts on a poster: 26.5%

Since April 2023 corporation tax has two headline rates: 19% for profits up to £50,000 and 25% from £250,000. What the headlines skip is the stretch in between, where marginal relief makes every extra pound of profit cost 26.5p in tax, more than either headline rate.

A company earning £60,000

The calculation starts at 25% on everything, then marginal relief hands part of it back based on how far below £250,000 the profit sits. The formula is 3/200ths of the gap.

The CT600 arithmetic

Profit £60,000, no associated companies

Tax at the main rate (25% × £60,000)£15,000

Marginal relief: 3/200 × (£250,000 − £60,000)(£2,850)

Corporation tax (box 440)£12,150

Average rate20.25%

Why 26.5% matters

Compare with a £50,000 profit

Tax at £50,000 (19%)£9,500

Tax at £60,000 (above)£12,150

Tax on the extra £10,000£2,650

Effective rate on that slice26.5%

The average rate creeps up smoothly from 19% to 25%, but the marginal pound between £50,000 and £250,000 always costs 26.5p. That makes this band the place where timing decisions (when to buy equipment, when to recognise income, pension contributions) have the most tax effect per pound.

The catches

Associated companies shrink the limits. Two companies under common control: the bands become £25,000 and £125,000 each. Five companies: £10,000 and £50,000. A profitable side company can quietly push your main company into the 26.5% band.
Short accounting periods shrink the limits proportionately too. A 6-month period gets roughly half the thresholds.
Dividends received from other companies count towards where you sit in the bands (augmented profits), even though they are not themselves taxed.
On the CT600 the claim is box 329 (small profits rate or marginal relief) plus the relief amount in box 435.

The wizard computes marginal relief automatically

Enter your figures and the number of associated companies; the bands, the relief and the effective rate are calculated and shown live, with the right boxes filled on the return.

Start your return

Illustration only, simplified for clarity. Real returns can differ. This page explains the mechanism; it is not tax or accountancy advice, and the figures on any return remain the company's responsibility.