Corporation Tax is not one flat percentage: the rate a UK company pays depends on how large its profits are. This article explains the two profit thresholds, the band in between where marginal relief applies, and the adjustments that catch out groups and young companies.
What are the Corporation Tax rates for company profits?
According to GOV.UK, as of October 2026 the main rate of Corporation Tax is 25%, and it applies to profits over £250,000. A lower small profits rate of 19% applies to companies with profits of £50,000 or less. Between those two figures sits a sliding band, where marginal relief may be available.
GOV.UK notes that a single rate applied from 1 April 2015 to 31 March 2023, and its guidance uses the financial year starting 1 April 2023 as the reference point for the current structure. For a company with a December year end, that means the rules below have shaped several sets of accounts already.
The picture can be summarised in a table.
| Taxable profits | Treatment |
|---|---|
| £50,000 or less | Small profits rate of 19% |
| Over £50,000 up to £250,000 | Marginal relief may apply, so the effective rate rises gradually from 19% towards 25% |
| Over £250,000 | Main rate of 25% |
Two words in that table deserve attention. The first is “profits”, which in this context means taxable profits as calculated for Corporation Tax, not the figure on the front of the management accounts. The second is “may”, because relief is not available to every company, as discussed below.
Why does the system have a gradual band at all?
The alternative would be a cliff edge. If a company paid 19% on everything up to £250,000 and then 25% on everything above it, a business earning £250,001 would face a sudden jump in its bill. Marginal relief smooths that out. According to GOV.UK, it works as a gradual increase between the small profits rate and the main rate, so the benefit of the lower rate is withdrawn steadily as profits climb rather than all at once.
GOV.UK points taxpayers to an official Marginal Relief calculator for working out the actual amount. The official guidance consulted for this article does not set out the formula itself, so the sensible reading is that the calculation is best left to the calculator or to an accountant’s software, with the owner understanding the shape of the result rather than hand-working the fraction.
That shape is easy to describe. At £50,000 of profit, the company is paying the 19% small profits rate. At £250,000, it is paying the full 25%. Everything between lies on a slope from one to the other. The effective rate on a profit of £150,000, the midpoint of the band, therefore sits somewhere between 19% and 25%, and the tax on the next pound of profit is higher than the tax on the average pound.
What does the tax bill look like at the edges?
Illustrative arithmetic helps to fix the scale. These examples use only the headline rates and thresholds, and they ignore reliefs, allowances and any adjustments.
- A company with £30,000 of profit is below the lower threshold. At 19%, the tax is £5,700 (£30,000 × 0.19).
- A company with exactly £50,000 of profit pays £9,500 at 19% (£50,000 × 0.19).
- A company with £300,000 of profit is above the upper threshold. At 25%, the tax is £75,000 (£300,000 × 0.25).
- A company with exactly £250,000 of profit would pay £62,500 if the full 25% applied (£250,000 × 0.25). That figure is the point where marginal relief runs out.
For profits between £50,000 and £250,000, the tax falls between those boundary figures: more than 19% of the profit and less than 25% of it. A company with £150,000 of profit, for example, would pay more than £28,500 (19% of £150,000) and less than £37,500 (25% of £150,000). The calculator gives the precise amount.
Do associated companies change the thresholds?
Yes, and this is where many owners with more than one company are surprised. According to GOV.UK, both thresholds are reduced in proportion to the number of associated companies. In the worked example on the official guidance, a company with three associated companies has its limits divided by four. The lower limit becomes £12,500 (£50,000 ÷ 4) and the upper limit becomes £62,500 (£250,000 ÷ 4).
The division by four rather than three suggests that the company itself is counted alongside its associated companies, although the guidance page does not spell the rule out in so many words. The definition of an associated company is set out in the official guidance and can be wider than owners expect, so anyone running several businesses under common control should read it carefully or take professional advice.
The effect can be stark. Consider a worked example of a company with the same four-way split and £80,000 of profit. A standalone company with £80,000 would sit in the marginal relief band. With three associated companies, its upper limit is £62,500, so £80,000 exceeds it and the full 25% main rate would apply, giving £20,000 of tax (£80,000 × 0.25). The same profit produces a very different treatment purely because of the corporate structure.
What happens with short accounting periods?
The limits are also scaled down for accounting periods of less than 12 months. According to GOV.UK, “if your accounting period is shorter than 12 months these limits are proportionately reduced”. The guidance gives no worked figures, so the following is illustrative arithmetic based on straightforward proportion.
A company with a six-month accounting period has half a year of entitlement, so its limits would be £25,000 (half of £50,000) and £125,000 (half of £250,000). Profits of £40,000 earned in that six-month period would therefore exceed the lower limit, even though a full-year company earning the same amount annually would remain comfortably under £50,000.
This matters most for newly formed companies, which often have a short first accounting period, and for businesses that change their year end. A strong first half-year can tip a company into marginal relief territory sooner than the annual figures suggest.
Who cannot use marginal relief?
Not every company qualifies. According to GOV.UK, relief is not available to non-UK resident companies, to close investment holding companies, or to companies whose profits, including certain distributions, exceed £250,000.
The last point is subtle. The test for the upper limit counts “profits including certain distributions”, so a company cannot assume that the taxable profit figure alone decides which side of £250,000 it falls on. The guidance’s wording indicates that the measure used to apply the limits can be broader than taxable profit, and it is a reason to rely on a proper computation rather than a rough estimate.
Why do the thresholds matter for London businesses?
London firms tend to run with high fixed costs, particularly rent, rates and salaries. That makes profit margins thin, but it also makes the profit line volatile: a good year can lift a company from the small profits rate into the marginal band, and a bad year can drop it back. The tax cost of that swing is not linear, because the effective rate changes as profits move through the band.
Several patterns follow from the structure:
- Group structures. Splitting a business into several companies once looked like a way to keep each below £50,000. The associated company rules exist to stop that, because the limits shrink as the number of companies grows.
- Cash planning. Corporation Tax is due on profits, not on cash in the bank. A company that books a large profit but is waiting on customers needs to plan for a tax bill that arrives regardless. The wider discussion in what business owners should understand about cash flow applies directly.
For smaller operators who are already managing rising costs, the broader pressures covered in the financial pressures London’s small businesses are navigating provide the backdrop against which a tax bill is a significant line.
How does this fit with borrowing and growth decisions?
Tax is one of several factors that shape what a growing company keeps, and financing and tax interact. The article on Growth Guarantee Scheme changes and what they mean for London borrowers looks at how longer loan terms change repayment pressure, and the position of repayments relative to profit and tax is part of the same picture. How finance costs are treated depends on each company’s circumstances, so it is a matter for an adviser.
Questions owners should be able to answer
Rather than working out the maths from scratch, a director can usefully be able to answer a short list of questions before each year end:
- What are the company’s expected taxable profits for the accounting period, and do they sit below £50,000, inside the band, or above £250,000?
- Is the company associated with any others, and how many, so that the limits are divided correctly?
- Is the accounting period a full 12 months, or shorter?
- Is the company a UK resident company, and does it fall into any category that is excluded from marginal relief?
- Is there enough cash set aside for the tax, given when it falls due?
Answering these in advance turns a surprise bill into a planned one. Companies House filing obligations, covered in Companies House director identity verification from November 2026, run alongside the tax calendar, and both reward early attention.
Reading the bands as a planning map
The Corporation Tax structure is simple at the ends and fiddly in the middle: 19% at £50,000 or less, 25% above £250,000, and a gradual climb between. The thresholds shrink with associated companies and short accounting periods, and marginal relief is closed to some categories of company. For London owners whose profits move around from year to year, understanding where they sit in the band is as useful as knowing the headline rate.
This article is general information, not tax, legal or financial advice. Rates, thresholds and rules can change, so check current details with HMRC or a qualified adviser.
Sources: GOV.UK; legislation.gov.uk
