If your company’s profits fall between the lower and upper Corporation Tax limits, you might have heard of ‘marginal relief Corporation Tax’. 

This is a valuable tax relief that protects your business from a larger and unfair tax bill, so you need to know how it affects what you pay.

From April 2023 onwards, Corporation Tax moved to a tiered system, and that means businesses no longer jump straight from the small profits rate of 19% to the main rate of 25%. Instead, marginal relief helps ease the transition, so companies with mid-range profits don’t get hit with a sudden leap in tax.

Today we'll explain what marginal relief is and how it works for the 2025/26 tax year, using a simple example to make the calculation super clear. Let's check it out. 

What is marginal relief for Corporation Tax?

Marginal relief is a tax break designed to stop businesses facing a sharp jump in Corporation Tax as profits grow. Instead of leaping straight from the small profits rate of 19% to the main rate of 25%, companies with mid-range profits pay a gradually increasing rate.

This relief was brought back in April 2023 alongside the rise to the 25% main rate, giving smaller and growing businesses a fairer, more gradual path between the two tax bands.

Here’s how it works in the 2025/26 tax year:

So if your company’s profits fall into that middle band, marginal relief corporation tax reduces the amount due, giving you an effective rate somewhere between 19% and 25%.

Something to note about marginal relief for Corporation Tax

Be aware that these thresholds don’t always apply at face value. If your business has one or more associated companies (for example, companies under common ownership or control), the limits are divided between them. 

Similarly, if your accounting period is shorter than 12 months, the thresholds are reduced proportionately.This means two companies each owned by the same person wouldn’t both get the full £50,000 lower limit and £250,000 upper limit - they’d have to share them.

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How to calculate marginal relief

Calculating marginal relief Corporation Tax might sound difficult, but once you know the formula, it’s actually straightforward. Marginal relief works by giving you a deduction from the Corporation Tax you’d normally pay at the main rate.

The formula is:

Where:

• U = Upper profits limit (£250,000, adjusted if needed)
  
  
• A = Your company’s adjusted taxable profits
  
  
• F = Marginal relief fraction (currently 3/200)
  
  

Once you’ve worked out this amount, you simply deduct it from the Corporation Tax calculated at the main 25% rate. This gives you the final bill, effectively smoothing the jump between the small profits and main rates.

Even with the formula, it’s important to remember that associated companies and short accounting periods can affect the calculation, so double-checking or getting professional advice is always a good idea.
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Worked example

Let’s see marginal relief in action with a company earning £150,000 in taxable profits during the 2025/26 tax year.

1. Calculate Corporation Tax at the main rate‍

£150,000 × 25% = £37,500

2. Work out the marginal relief deduction‍

(Upper limit £250,000 – Adjusted profits £150,000) × (3/200 ÷ £250,000)
Simplified: (250,000 – 150,000) × (3/200 ÷ 250,000)

Or, more straightforwardly:

(250,000 – 150,000) × (3/200 ÷ 250,000) = £1,500

3. Subtract the marginal relief‍

£37,500 – £1,500 = £36,000 Corporation Tax due

That means instead of paying the full 25% rate (£37,500), your company benefits from marginal relief and pays a little less — an effective rate of 24%.

A simpler way

A simpler way to calculate marginal relief is to calculate all profits in brackets:

<£50,000*  x 19% 

£50,001* - £150,000 x 26.5% 

>=£250,000* x 25% up to £50,000

*These figures are divided if the company has associates.
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Worked example

Let’s see marginal relief in action with a company earning £150,000 in taxable profits during the 2025/26 tax year.

Calculate Corporation Tax:

£50,000 x 19% = £9,500

£100,000 x 26.5% (£150,000 - £50,000) = £26,500

£12,500 + £26,500 = £36,000  Corporation Tax due

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What this means for your business

Marginal relief smooths the path between the small profits and main rates of Corporation Tax, making sure businesses in the middle band don’t face a sudden jump in their bill.

If your profits fall between £50,000 and £250,000, you’ll benefit from marginal relief corporation tax, but the exact calculation can be challenging, especially if you have associated companies or a shorter accounting period.

That’s how Crunch’s expert accountants can take the stress out of Corporation Tax, making sure you’re paying the right amount and not a penny more.

Ready to make tax simple? Get in touch with Crunch today and let our expert accountants handle the details, so you can focus on growing your business.

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