Work out which Corporation Tax rate applies to your profits

Guide summary

Use your company's profits for the accounting period, not its turnover, to decide the rate
Test the limits against augmented profits: taxable profits plus dividends from companies outside your 51% group
Work out marginal relief as 3/200 × (upper limit − augmented profits) × (taxable profits ÷ augmented profits)
Deduct marginal relief from the tax at the main rate on all your taxable profits
Divide both limits by 1 plus the number of associated companies, including non-UK companies
Ignore an associated company that carried on no trade or business in the period
Non-UK-resident companies pay the main rate on all profits, as do close investment-holding companies
If the rate changes in your period, count the days each rate applied and calculate the tax for each part

The rate your company pays depends on its profits for the accounting period, not its turnover. Below a lower limit the small profits rate applies to all taxable profits, and above an upper limit the main rate applies to all of them. Between the two limits you pay the main rate, reduced by marginal relief.

Corporation Tax rates 2026/27

Current Corporation Tax rates by profit band for UK limited companies.

Small profits rate (up to £50,000): 19%
Marginal rate (£50,001 to £250,000): Variable (marginal relief applies)
Main rate (over £250,000): 25%

Marginal relief provides a gradual increase between the small profits rate and the main rate for profits between £50,000 and £250,000. The effective marginal rate in this band is 26.5%.

Which profits count

The limits are tested against the company's augmented profits. These are its taxable profits plus the dividends it receives from companies outside its 51% group. If the company receives no such dividends, augmented profits equal taxable profits.

Two kinds of company cannot use the small profits rate or marginal relief. A close investment-holding company, and a company that is not UK-resident, pays the main rate on all its profits.

Work out marginal relief

Calculate the tax at the main rate on all the company's taxable profits, then deduct the marginal relief:

marginal relief = standard fraction × (upper limit − augmented profits) × (taxable profits ÷ augmented profits)

The standard fraction has been 3/200 since 1 April 2023, and the limits for a company with no associated companies and a 12-month period are £50,000 and £250,000. Where taxable profits equal augmented profits, the last part of the formula is 1.

For example, a company with no associated companies and taxable profits of £150,000 owes £37,500 at the main rate. Its relief is 3/200 × (£250,000 − £150,000) = £1,500, so it pays £36,000, an effective rate of 24%.

Short accounting periods

For an accounting period shorter than 12 months, both limits are reduced in proportion. A 6-month period has limits of £25,000 and £125,000.

Associated companies

A company counts as associated if it was associated with yours for even part of the period.

Associated companies rules for Corporation Tax thresholds

How associated companies reduce the £50,000 lower limit and £250,000 upper limit for the Corporation Tax small profits rate and marginal relief: each limit is divided by 1 plus the number of associated companies.

The £50,000 lower limit and £250,000 upper limit for Corporation Tax are divided by 1 plus the number of the company's associated companies. This stops profits being split across several companies to take advantage of the 19% small profits rate. The limits are also reduced for accounting periods shorter than 12 months.

Associated company: A company that controls, or is controlled by, the company, or is under the same control
Control: Power over a company's affairs, or the greater part of its shares, votes, income or assets on a winding up
Limits divided by: 1 + number of associated companies
1 associated company: £25,000 lower limit / £125,000 upper limit each
2 associated companies: £16,667 lower limit / £83,333 upper limit each
3 associated companies: £12,500 lower limit / £62,500 upper limit each
Inactive companies: Ignored if they carried on no trade or business in the period
Non-UK companies: Count as associated companies wherever they are resident

Worked example: one associated company

Mei owns all the shares in Company A and in Company B, so each is an associated company of the other. Each company's lower limit is £50,000 ÷ 2 = £25,000 and its upper limit is £250,000 ÷ 2 = £125,000.

Company A makes £40,000 profit and receives no distributions. On its own it would pay 19%, because £40,000 is under £50,000. With the associated company, £40,000 is above the lower limit of £25,000 and below the upper limit of £125,000, so Company A pays the main rate less marginal relief:

Tax at the main rate: £40,000 × 25% = £10,000
Marginal relief: 3/200 × (£125,000 − £40,000) = £1,275
Corporation Tax payable: £8,725, an effective rate of about 21.8%

What counts as control?

A person has control of a company if they exercise, are able to exercise or are entitled to acquire direct or indirect control over its affairs. In particular, a person has control if they hold or are entitled to acquire the greater part of the company's share capital, the greater part of its voting power, enough share capital to receive the greater part of any income distributed, or rights to the greater part of its assets on a winding up. Two or more people can have control together.

Rights held on someone's behalf, and the rights of companies they control, are attributed to them. The rights of their relatives (a spouse or civil partner, parents, children, brothers and sisters) and business partners are also attributed to them, but only where the two companies are substantially commercially interdependent.

Some holdings are ignored when deciding whether companies are associated, including fixed-rate preference shares held by a business that provides finance, a company's position as a loan creditor where there is no other connection, and rights held as a trustee where there is no other connection between the companies.

Corporation Tax marginal relief (opens in a new tab)

When the rate changes during the period

You pay the rates that applied for the financial year in which each part of the accounting period falls. Work out how many days each rate applied, then calculate the tax due for each part.

Legal basis

Primary legislation and key regulations

Finance Act 2021 Primary 2021 · UK-wide Corporation Tax Act 2010 Primary 2010 · UK-wide

Browse UK legislation legislation.gov.uk

Official guidance

Rates and allowances: Corporation Tax (opens in a new tab)

Publication · GOV.UK

Associated companies and Corporation Tax (opens in a new tab)

HMRC

Corporation Tax rates (opens in a new tab)

HMRC

Work out which Corporation Tax rate applies to your profits

Which profits count

Work out marginal relief

Short accounting periods

Associated companies

When the rate changes during the period

Legal basis

Official guidance

Related guides in Tax & Finance

Associated companies and Corporation Tax

Plan your Corporation Tax payments

Understand how Corporation Tax works

File your Company Tax Return (CT600)

Understand the taxes your limited company pays