Small Business Corporation Tax: How to Calculate What You Owe (2026/27)

On this page: Quick Answer | The Two Rates | How Marginal Relief Works | Worked Examples | Associated Companies | Managing the Marginal Band | Filing and Payment | Examples | Common Mistakes | Editor’s Insights | Checklists | FAQ | Sources

Knowing that Corporation Tax is “19% or 25%” only gets a small company halfway to the real answer — the genuinely tricky part is the band in between, where an effective rate higher than 25% itself can apply, and where associated companies can shrink the thresholds dramatically.

This guide works through exactly how small company Corporation Tax is calculated for 2026/27, with the actual marginal relief formula and fully worked examples, so you can check your own numbers rather than relying on rates alone.

Quick Answer

Corporation Tax for 2026/27 is 19% on profits up to £50,000 (Small Profits Rate) and 25% above £250,000 (Main Rate). Profits between these thresholds get marginal relief, calculated as (Upper Limit − Augmented Profits) × 3/200, producing an effective marginal rate of approximately 26.5% within the band — higher than the 25% main rate itself. Associated companies divide both the £50,000 and £250,000 thresholds between them.

The Two Corporation Tax Rates for 2026/27

UK Corporation Tax operates on two headline rates, with a tapering mechanism between them rather than a sharp jump from one to the other.

The Small Profits Rate of 19% applies to companies with taxable profits at or below £50,000. The Main Rate of 25% applies once profits exceed £250,000. Between these two thresholds, marginal relief gradually increases the effective rate from 19% toward 25%, rather than companies suddenly jumping to the full main rate the moment they cross £50,000.

How Marginal Relief Actually Works

Marginal relief is calculated by first applying the 25% main rate to your full taxable profit, then subtracting a specific relief amount using HMRC’s statutory formula.

The formula is: Marginal Relief = (Upper Limit − Augmented Profits) × 3/200 × (Taxable Trading Profits ÷ Augmented Profits). For most small companies without dividend income from outside their group, augmented profits simply equal taxable profits, simplifying the calculation to (£250,000 − Profit) × 3/200. The 3/200 fraction (0.015) is set by statute for the 2026/27 tax year and applies uniformly to every company in the marginal band.

Editor’s Insight: The effective marginal rate within the £50,000–£250,000 band works out to roughly 26.5% on each additional pound of profit — genuinely higher than the 25% main rate itself. This means a company earning exactly £100,000 pays a higher rate on that last pound of profit than a company earning £300,000 does on theirs, a quirk worth understanding rather than assuming higher profit always means a proportionally higher bill.

Worked Examples

Seeing the actual calculation makes the formula considerably easier to apply to your own figures.

Example 1 — Profit of £45,000 (below the Small Profits Rate threshold): Tax = £45,000 × 19% = £8,550. No marginal relief applies, since profit sits below £50,000.

Example 2 — Profit of £100,000 (within the marginal relief band): Step 1: Tax at main rate = £100,000 × 25% = £25,000 Step 2: Marginal Relief = (£250,000 − £100,000) × 3/200 = £150,000 × 0.015 = £2,250 Step 3: Final tax = £25,000 − £2,250 = £22,750 This gives an effective rate of 22.75% — higher than 19%, but meaningfully below the full 25% main rate.

Example 3 — Profit of £300,000 (above the Main Rate threshold): Tax = £300,000 × 25% = £75,000. No marginal relief applies, since profit exceeds £250,000 entirely.

Associated Companies and Shrinking Thresholds

If your company is associated with other companies under common control, both the £50,000 and £250,000 thresholds are divided by the total number of associated companies, including your own.

This exists specifically to prevent group structures from unfairly multiplying access to the lower rate by splitting profits across several small entities. With one associated company (two companies total), thresholds halve to £25,000 and £125,000. With two associated companies (three companies total), they divide by three, to roughly £16,667 and £83,333. Association is determined by common control, including control exercised through connected persons — genuinely dormant companies are generally excluded from the count.

Editor’s Insight: Associated company rules catch out more ordinary small companies than people expect — a family running two modestly profitable trading companies, or a freelancer with a personal service company alongside a separate side venture, can find their thresholds shrinking significantly without realising the rules applied to their specific situation.

Managing Profits in the Marginal Relief Band

Understanding the marginal band matters practically because certain year-end decisions can genuinely affect which side of a threshold your company falls on.

• Monitor profits as your accounting year progresses, rather than only calculating tax once the year has closed, to spot early whether you’re approaching a threshold.
• Consider the timing of income and allowable expenses where genuinely flexible — bringing forward a planned equipment purchase, for instance, can legitimately reduce taxable profit before the year end.
• Review associated company status regularly, particularly if your group structure has changed, since this directly affects which thresholds apply to you.
• Use accounting software or professional support for the calculation itself — most CT600 filing tools calculate marginal relief automatically, reducing the risk of a manual calculation error.

Filing and Payment Deadlines

Corporation Tax must be paid 9 months and 1 day after your company’s accounting period ends, while the CT600 return itself must be filed within 12 months of the period end — two genuinely separate deadlines that are easy to conflate.

Paying late accrues interest from the original due date regardless of when the return itself is eventually filed, so it’s worth calculating an estimate ahead of the return being finalised if there’s any doubt about meeting the filing deadline comfortably.

Illustrative Examples

Real-World Scenario — A company entering the marginal band for the first time: A small consultancy that has always sat comfortably under £50,000 profit has an unusually strong year, reaching £90,000. Recalculating using the marginal relief formula rather than assuming the full 25% rate applies, the company confirms tax of £22,050 rather than the £22,500 a flat-rate assumption would suggest — a modest but genuine difference worth getting right.

Real-World Scenario — Associated companies shrinking the threshold unexpectedly: A director running two separate limited companies under common control discovers, on reviewing the associated companies rules properly, that their individual £50,000 thresholds have effectively halved to £25,000 each — prompting a full recalculation of expected tax for the year across both companies.

Common Mistakes

1. Assuming a flat 19% or 25% applies without checking marginal relief — companies in the £50,000–£250,000 band often assume the full main rate applies, overstating their tax bill unnecessarily.
2. Forgetting associated companies shrink the thresholds — assuming the standard £50,000/£250,000 limits apply without checking whether common-control associations affect your specific situation.
3. Confusing the payment deadline with the filing deadline — these are genuinely separate (9 months and 1 day for payment, 12 months for filing), and missing the earlier payment deadline accrues interest even if the return itself is filed on time.
4. Not accounting for augmented profits correctly — overlooking dividend income from non-group companies, which factors into the marginal relief calculation for companies that receive it.
5. Leaving the calculation until the return is due — not monitoring profits through the year means missing legitimate opportunities to manage timing before the accounting period closes.

Editor’s Insights

• The 26.5% effective marginal rate is a genuinely counterintuitive feature of the system — many company directors are surprised to learn that profit in this specific band is taxed more heavily per pound than profit safely above £250,000.
• Associated company rules are worth reviewing annually, not just when a group structure first forms, since circumstances (a new business partner, a change in shareholding) can create or remove an association without an obvious trigger to prompt a recheck.
• Most modern accounting and CT600 filing software calculates marginal relief automatically and correctly, making manual calculation mainly useful for understanding and sense-checking the figure your software produces, rather than replacing it.
• Timing genuinely flexible income and expenses around the accounting year end is legitimate tax planning, not avoidance, provided the underlying transactions are genuine and not artificially manufactured purely to shift the tax outcome.
• Companies hovering near £50,000 or £250,000 specifically benefit from getting professional input, since the marginal relief band’s effective rate quirks make the financial impact of small profit changes larger than intuition suggests.

Calculating Your Corporation Tax Checklist

• Identified which band your taxable profit falls into (below £50,000, marginal band, above £250,000)
• Checked whether your company has any associated companies affecting your thresholds
• Calculated marginal relief using the correct formula if profits fall between £50,000 and £250,000
• Confirmed whether augmented profits include any dividend income from outside your group
• Cross-checked a manual calculation against your accounting software’s figure

Filing and Payment Checklist

• Confirmed your accounting period end date and the resulting payment deadline (9 months and 1 day after)
• Noted the separate 12-month filing deadline for your CT600 return
• Set aside funds for payment ahead of the deadline, based on an estimated calculation if the return isn’t yet finalised
• Reviewed associated company status for any changes since the last accounting period
• Considered professional input if profits sit close to either threshold

FAQ

What is the Corporation Tax rate for a small company in 2026/27? 19% (Small Profits Rate) applies to profits up to £50,000, 25% (Main Rate) applies above £250,000, with marginal relief tapering the rate for profits in between.

How do I calculate marginal relief for Corporation Tax? Marginal Relief = (£250,000 − Taxable Profit) × 3/200, then subtracted from tax calculated at the 25% main rate on your full profit — for most small companies without external dividend income.

Why is the effective tax rate in the marginal band higher than 25%? The marginal relief formula produces an effective marginal rate of approximately 26.5% on each additional pound of profit within the £50,000–£250,000 band, genuinely higher than the 25% main rate itself, due to how the relief tapers.

How do associated companies affect my Corporation Tax thresholds? Both the £50,000 and £250,000 thresholds are divided by the total number of associated companies, including your own — two associated companies (three companies total) would divide the limits by three.

When do I need to pay Corporation Tax? Payment is due 9 months and 1 day after your company’s accounting period ends — a separate, earlier deadline than the 12-month filing deadline for your CT600 return.

What counts as an associated company? Companies under common control, including control exercised through connected persons, generally count as associated — genuinely dormant companies are typically excluded from the count.

Can I reduce my Corporation Tax by timing expenses before year end? Yes, legitimately — bringing forward genuine, planned expenses (such as qualifying equipment purchases) before your accounting period ends can reduce taxable profit for that year, provided the transactions are genuine business decisions.

Does accounting software calculate marginal relief automatically? Most modern accounting and CT600 filing software calculates marginal relief automatically using the correct formula, though understanding the calculation yourself helps you sense-check the figure produced.

Sources & References

• GOV.UK — Corporation Tax rates and reliefs
• GOV.UK — marginal relief for Corporation Tax
• HMRC — associated companies guidance
• GOV.UK — Corporation Tax payment and filing deadlines

Written by the Epiclectic Editorial Team. Epiclectic covers UK lifestyle, money, home, work and everyday-life topics for a national audience. Last reviewed: August 2026

Conclusion

Small business Corporation Tax genuinely rewards understanding the marginal relief calculation properly rather than assuming a flat rate applies — the difference between a rough estimate and the correct figure can be several hundred pounds even for a modest company, and associated company rules can shrink your thresholds in ways that aren’t always obvious upfront.

For the full picture across all UK business taxes, including Income Tax, VAT, and dividend tax alongside Corporation Tax, our UK business tax rates guide covers the complete landscape, and our business budgeting guide helps plan around your expected tax liability throughout the year.