Published: June 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation.
When the UK government reintroduced the tiered Corporation Tax system, it created a massive tax gap between small companies paying 19% and large companies paying 25%. To prevent a company earning £50,001 from facing a sudden, massive tax increase on its entire profit, HMRC uses a mechanism called **Marginal Relief**. In the 2026/27 tax year, Marginal Relief acts as a sliding scale for companies with taxable profits between £50,000 and £250,000. Let’s look at the mathematical formula behind this relief and see a step-by-step example of how Corporation Tax is calculated.
The Marginal Relief Formula
To calculate Marginal Relief, HMRC uses a standard fraction. For the 2026/27 tax year, the Marginal Relief fraction is **3/200** (or 0.015 in decimal form). The tax is calculated by first applying the Main Rate (25%) to all profits, and then subtracting the Marginal Relief amount using this formula:
Marginal Relief = (Upper Limit – Taxable Profits) * (Main Rate – Small Profits Rate) * (Lower Limit / (Upper Limit – Lower Limit))
Which simplifies to:
Marginal Relief = ( £250,000 – Taxable Profits ) * ( 3 / 200 )
Calculation Example: Profits of £100,000
Let’s calculate the exact Corporation Tax due for a company with net taxable profits of £100,000:
- Calculate Main Tax (25%): £100,000 * 25% = £25,000.00
- Calculate Marginal Relief: (£250,000 – £100,000) * (3/200) = £150,000 * 0.015 = £2,250.00
- Subtract Relief from Main Tax: £25,000.00 – £2,250.00 = £22,750.00
The net Corporation Tax due is £22,750.00, which represents an **effective tax rate of 22.75%** (higher than 19%, but lower than 25%). If you want to run these calculations instantly for your business, use our free Corporation Tax Calculator.
The Marginal Tax Rate Trap
Because of the way the formula works, every pound of profit your company earns in the marginal band (between £50,000 and £250,000) is effectively taxed at a **marginal rate of 26.5%**. This makes tax planning within this band extremely important. Consider checking the Associated Companies rules or using employer pension contributions and capital allowances to lower your profits and protect your margins. Check out our Pension Calculator and Capital Allowances Calculator to model these deductions.
Frequently Asked Questions: Marginal Relief
Q: What is Marginal Relief in UK Corporation Tax?
A: Marginal Relief is a tax deduction that reduces the Corporation Tax bill for companies with taxable profits between £50,000 and £250,000. It ensures that your effective tax rate increases gradually from 19% to 25% as your profits rise.
Q: What is the Marginal Relief fraction for 2026/27?
A: The Marginal Relief fraction for the 2026/27 tax year is 3/200 (or 1.5% decimal equivalent). This fraction is multiplied by the difference between £250,000 and your actual taxable profits to find your tax deduction.
Q: Why is the marginal rate 26.5%?
A: The marginal rate of 26.5% is the mathematical result of the 25% main rate tax minus the 1.5% reduction in relief on each additional pound of profit. Any profit earned between £50,000 and £250,000 is taxed at this higher rate, making tax planning essential.