Small Profits Rate vs Main Rate: Which Applies to Your Limited Company?

The corporation tax rate your limited company pays in 2026/27 depends on its taxable profit: companies with profits up to £50,000 pay the small profits rate of 19%, companies with profits above £250,000 pay the main rate of 25%, and companies with profits between those two figures pay 25% reduced by marginal relief. Understanding which corporation tax rate applies matters because the difference is worth thousands of pounds, and the profit band between £50,000 and £250,000 carries an effective marginal rate of 26.5%, higher than the headline 25%. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, works with limited company owners across the UK to plan around these thresholds. This guide explains the corporation tax rates in force for 2026/27, how marginal relief is calculated, how associated companies reduce the thresholds, and the year-end planning steps that keep more profit in your business.

Key Takeaways

• The corporation tax small profits rate is 19% and applies to companies with taxable profits up to £50,000 in 2026/27.
• The corporation tax main rate is 25% and applies to companies with taxable profits above £250,000 in 2026/27.
• Companies with profits between £50,000 and £250,000 pay the main rate of 25% reduced by marginal relief, giving an effective marginal rate of 26.5% on profits within that band.
• The £50,000 and £250,000 thresholds are divided by the number of associated companies plus one, so a company with one associate has a lower threshold of £25,000.
• The marginal relief fraction for the 2026/27 tax year is 3/200.
• Thresholds are reduced proportionately for accounting periods shorter than 12 months.

What are the corporation tax rates for UK companies in 2026/27?

There are two corporation tax rates in 2026/27: a small profits rate of 19% and a main rate of 25%. The small profits rate of 19% applies to companies whose taxable profits do not exceed £50,000, known as the lower limit. The main rate of 25% applies to companies whose taxable profits exceed £250,000, known as the upper limit. Companies sitting between the two limits pay tax at the main rate but qualify for marginal relief, which tapers the effective rate up from 19% towards 25% as profits rise.

These corporation tax rates apply to a company's taxable total profits, which include trading profits, property income, and chargeable gains after deducting allowable expenses and reliefs. The rate is determined by the level of profit, not by turnover or company size in a general sense. A company with high turnover but modest profit can still pay the small profits rate of 19%. For a full overview of how the tax works from first principles, see our guide to corporation tax.

How does marginal relief work between £50,000 and £250,000?

Marginal relief reduces the corporation tax payable by companies with profits between the £50,000 lower limit and the £250,000 upper limit, so that the effective rate rises gradually rather than jumping straight to 25%. The relief is calculated using the marginal relief fraction of 3/200 for 2026/27, applied to the difference between the upper limit and the company's profits.

The formula HMRC uses is: (Upper limit minus profits) multiplied by 3/200. That figure is then deducted from the tax otherwise due at the main rate of 25%.

Worked example: Meridian Consulting Ltd has taxable profits of £120,000 for the year ended 31 March 2027 and no associated companies. Tax at the main rate is £120,000 multiplied by 25%, which is £30,000. Marginal relief is (£250,000 minus £120,000) multiplied by 3/200, which is £130,000 multiplied by 3/200, giving £1,950. Corporation tax due is £30,000 minus £1,950, which is £28,050. That equates to an overall effective rate of 23.4% on the full profit. Crucially, the last pound of profit in this band is taxed at 26.5%, so reducing profits within the band delivers relief at that higher marginal rate.

How do associated companies affect the corporation tax rate?

Associated companies reduce the £50,000 and £250,000 thresholds because the limits are divided by the total number of associated companies plus the company itself. If a company has one associated company, both the lower and upper limits are halved, to £25,000 and £125,000 respectively. This rule prevents a single business being split across multiple companies to access the small profits rate more than once.

A company is generally associated with another where one controls the other, or both are under the control of the same person or persons. Dormant companies and certain passive holding companies are excluded from the count. Getting this wrong is a common and costly error in corporation tax planning for limited company groups.

Worked example: Harbour Group has two active trading companies under common control, so each is treated as having one associated company. The lower limit for each becomes £25,000 and the upper limit £125,000. A company that would have paid 19% on £40,000 of profit as a standalone now falls into the marginal relief band, increasing its effective rate. Structuring decisions should always account for the associated company rules before incorporation or reorganisation.

What year-end planning can reduce the rate your company pays?

Year-end corporation tax planning aims to manage taxable profit around the £50,000 and £250,000 thresholds so that more profit is taxed at lower effective rates. Because profits within the £50,000 to £250,000 band carry a 26.5% marginal rate, every allowable deduction that brings profit down within that band saves tax at 26.5%, not 25%.

Practical steps include bringing forward genuine business expenditure before the accounting year end, making employer pension contributions for directors, which are deductible when paid, and claiming full capital allowances on qualifying equipment. The annual investment allowance gives 100% relief on qualifying plant and machinery up to £1,000,000, and full expensing continues to allow companies to deduct the full cost of qualifying new plant and machinery in the year of purchase. Timing a large asset purchase before the year end can move profit into a lower band. Directors should also review whether profit is best retained, extracted as salary or dividends, or contributed to a pension, as each has a different tax outcome. These decisions are best modelled before, not after, the accounting period ends.

Frequently Asked Questions

What is the small profits rate of corporation tax in 2026/27?

The small profits rate of corporation tax is 19% for the 2026/27 tax year. It applies to UK limited companies with taxable profits up to £50,000. If a company has associated companies, the £50,000 threshold is divided by the number of associated companies plus one, which can push profits into the marginal relief band even at modest profit levels.

Why is the marginal rate of corporation tax 26.5%?

The marginal rate is 26.5% because profits between £50,000 and £250,000 effectively bridge the gap between the 19% small profits rate and the 25% main rate. Although the headline rate is 25%, marginal relief tapers the charge so that each additional pound of profit in that band is taxed at 26.5%, making deductions within the band especially valuable.

How do I know if my company has associated companies?

A company has associated companies where it controls, is controlled by, or shares common control with another company. Control usually means holding more than 50% of shares, voting rights, or profits. Dormant companies are ignored. The number of associated companies matters because it reduces the £50,000 and £250,000 corporation tax thresholds proportionately.

Do the corporation tax thresholds change for a short accounting period?

Yes. The £50,000 lower limit and £250,000 upper limit are reduced proportionately for accounting periods shorter than 12 months. For example, a six-month accounting period would have a lower limit of £25,000 and an upper limit of £125,000. This ensures companies cannot access the small profits rate on a full-year basis for a part-year period.

Is the 19% rate the same as it was before April 2023?

The 19% rate now applies only to companies with profits up to £50,000, whereas before April 2023 the 19% rate applied to all company profits regardless of level. Since April 2023 the two-rate system with a 25% main rate and marginal relief has been in place, and it continues to apply for the 2026/27 tax year.

How Blue Tick Can Help

Blue Tick Accountants helps limited company owners work out exactly which corporation tax rate applies to their business and plan around the £50,000 and £250,000 thresholds before the year end. From modelling marginal relief and reviewing associated company positions to timing capital purchases and pension contributions, Blue Tick turns the rules into a concrete plan that lowers your effective rate. Head to our website and book a meeting now.

Conclusion

The rate your limited company pays in 2026/27 is not a single figure: it ranges from 19% up to an effective 26.5% depending on your profit level and associated companies. Because the marginal band is taxed more heavily than the headline rate, well-timed deductions and a clear view of your associated company position can meaningfully reduce your bill. Review your projected profit before your accounting year end so there is still time to act.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK plan their taxes with confidence. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: Corporation Tax Payments: Deadlines, Penalties and Instalment Options.