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The short answer
A UK company with taxable profits between £50,000 and £250,000 pays Corporation Tax at the 25% main rate, then deducts marginal relief, which HMRC sets using a standard fraction of 3/200. On £100,000 of profit that relief is £2,250, so the bill is £22,750 rather than £25,000. Both limits are divided between associated companies and cut for short accounting periods.
Many Nigerian founders in the UK first meet Corporation Tax when the company's profit is small enough to be taxed at 19%. The surprise comes in a good year, when profit passes £50,000 and the accountant mentions "marginal relief". This article explains what that relief is, how it is worked out, and why the band between £50,000 and £250,000 is taxed more heavily per extra pound than either end.
The two rates and the band between them
HMRC's rates and allowances page, updated 1 April 2026, lists the same Corporation Tax rates for the financial years starting 1 April 2023, 2024, 2025 and 2026:
| Taxable profits | What applies |
|---|---|
| Under £50,000 (lower limit) | Small profits rate, 19% |
| £50,000 to £250,000 | Main rate of 25%, reduced by marginal relief |
| Over £250,000 (upper limit) | Main rate, 25%, no relief |
Marginal relief is not a separate rate. It is a deduction from a bill first calculated at 25%, and it shrinks as profit rises until it disappears at the upper limit. The point of it is to stop a company's tax jumping from 19% to 25% of all its profit the moment it earns £1 more than £50,000.
How the relief is calculated
HMRC's rates page gives the standard fraction for marginal relief as 3/200 for 2023 onwards. For a company with no associated companies, a 12-month accounting period and no exempt distributions from other companies, the relief works out as:
Where a company receives dividends from companies outside its group, the formula brings those in too, which is one reason HMRC points companies to its Marginal Relief calculator rather than asking them to work it out by hand. Use the calculator, or your accountant's software, to check any figure before you file.
Worked example: three profit levels
Example only, for a single company with a 12-month period and no associated companies:
| Taxable profit | Tax at 25% | Marginal relief | Tax due | Share of profit |
|---|---|---|---|---|
| £50,000 | £12,500 | (£250,000 − £50,000) × 3/200 = £3,000 | £9,500 | 19% |
| £100,000 | £25,000 | (£250,000 − £100,000) × 3/200 = £2,250 | £22,750 | 22.75% |
| £150,000 | £37,500 | (£250,000 − £150,000) × 3/200 = £1,500 | £36,000 | 24% |
At £50,000 the formula gives exactly 19%, and at £250,000 the relief is nil, so the band joins the two rates smoothly. What it does not do is spread the tax evenly. Compare £100,000 with £150,000: the extra £50,000 of profit adds £13,250 of tax (£36,000 − £22,750), which is 26.5% of that slice. Inside the band, each additional pound of profit is taxed at an effective 26.5%, higher than the 25% main rate.
That marginal figure matters when you weigh spending decisions. A £10,000 deductible cost incurred by a company in the band saves about £2,650 in Corporation Tax, not £1,900 or £2,500. It is one reason capital purchases are often timed with the band in mind; see how the Annual Investment Allowance works.
When the limits are smaller than £50,000 and £250,000
GOV.UK's marginal relief guidance sets out two adjustments that catch many founders out.
Associated companies
Both limits are divided by the number of associated companies, counting your own. GOV.UK's example is a company with three associated companies: the limits are divided by four, giving a lower limit of £12,500 and an upper limit of £62,500. A founder who owns a trading company and a separate property company may find that each company's limits are halved, so profit of £40,000 in one of them is already inside the band.
Whether two companies are associated depends on control, and the rules are detailed. If you own or control more than one UK company, or your spouse or business partner does, ask your accountant to confirm the count before you assume the full limits.
Short accounting periods
If an accounting period is shorter than 12 months, both limits are reduced in proportion. Example: a company whose first period runs six months has limits of £25,000 and £125,000 for that period. First periods are often short, so a new company can pay more than expected in its first return. For the filing timetable, see first-year accounts and filing.
What to check first
- Your taxable profit after allowable expenses and capital allowances, not the accounting profit before them.
- The length of the accounting period, and whether it straddles two financial years.
- How many associated companies you have, counting your own.
- Whether the company received dividends from companies outside its group.
- The result in HMRC's Marginal Relief calculator, compared with your accountant's figure.
If you are still deciding how to pay yourself, the 26.5% marginal effect in the band is one input into the salary-versus-dividend question; the wider picture is in paying yourself as a UK director. These are general points of information, not tax advice.
Where Pryme fits
A Pryme Business Account can be opened from any country and holds GBP, NGN, USD and EUR with local account details for each. Setting aside Corporation Tax as profit builds is easier when the money sits in its own currency balance; the Finance agent (/p/finance) can prepare a running estimate for you to review, and nothing moves without your approval. See business multicurrency accounts.
Questions people ask
What is marginal relief in UK Corporation Tax?
A deduction from the 25% main-rate bill for companies with taxable profits between £50,000 and £250,000, calculated with HMRC's standard fraction of 3/200. It tapers to nothing at £250,000.
What is the effective tax rate between £50,000 and £250,000?
The average rate rises from 19% to 25% across the band, but each extra pound of profit inside it is taxed at an effective 26.5%.
Do I get marginal relief automatically?
It is claimed in the company's tax return calculation. Your accountant or filing software works it out; HMRC's Marginal Relief calculator lets you check the figure.
Why are my limits lower than £50,000?
Either the company has associated companies, which divide the limits, or the accounting period is shorter than 12 months, which reduces them in proportion.
Sources
- GOV.UK: Rates and allowances: Corporation Tax (updated 1 Apr 2026) · accessed Oct 2026
- GOV.UK: Corporation Tax: Marginal Relief (updated 30 Sep 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.