Corporation tax marginal relief
Updated 7 November 2026
If your company’s profit is between £50,000 and £250,000, which covers most contractor companies, each extra pound of profit costs 26.5p in corporation tax. That is the figure to use when you decide whether to put a cost, a salary or a pension contribution through the company.
Profit up to £50,000 is taxed at 19%, the small profits rate. Profit of £250,000 or more is taxed at 25%, the main rate. In between, the company pays 25% on all of its profit and gets some back as marginal relief. The limits have been fixed since April 2023.
The formula
Marginal relief is 3/200 of the gap between your profit and £250,000. Tax is 25% of profit, less that relief.
Written out: tax = 25% × profit − 3/200 × (£250,000 − profit).
At £50,000 of profit the relief takes the 25% bill down to exactly 19%. At £250,000 the gap is zero, so there is no relief and you pay the full main rate. Between the two it slides smoothly.
Worked example at £100,000
Tax at 25% would be £25,000. The gap to £250,000 is £150,000, and 3/200 of that is £2,250. Tax due is £25,000 less £2,250, which is £22,750, an effective rate of 22.75%.
The calculator shows the relief as its own line, so you see both parts rather than one blended percentage.
Why the next pound costs 26.5p
Give the £100,000 company one more pound of profit. The 25% charge goes up by 25p. The gap to £250,000 shrinks by £1, so the relief falls by 3/200 of a pound, which is 1.5p. The bill rises by 26.5p.
The same is true of every pound between £50,000 and £250,000. The effective rate on the whole profit climbs gradually from 19% to 25%, but the rate on the next pound is a flat 26.5%, higher than the main rate. At £250,000 it drops back to 25% because there is no relief left to lose.
What it means for a contractor
Salary, employer NI, pension contributions and allowable expenses all come off before corporation tax. A company with £100,000 of profit that pays its director £12,570, plus the £1,135.50 of employer NI that goes with it, takes £13,705.50 off the taxable figure and saves 26.5% of it. That is a large part of why the £12,570 salary wins for most directors.
In the take-home calculator’s standard example, profit after salary and costs is £94,294.50. Corporation tax comes to £21,238.05, an effective rate of about 22.5%, exactly where the sliding scale puts it.
Associated companies and short periods
The £50,000 and £250,000 limits apply to one company with a 12-month accounting period. If you have associated companies, including one your spouse controls, the limits are shared between them. A period shorter than 12 months scales them down. Dividends your company receives from other companies are usually exempt from the tax but still count towards the limits.
The calculator assumes one company and a full year. If that is not your position, change the limits in the formula above.
When to pay
Corporation tax is due nine months and one day after the end of the accounting period. The return is due twelve months after the period end, so the money is owed before the paperwork. In the middle band, set the tax aside through the year at 26.5% and you will end with a surplus rather than a shortfall.