Why profit in the marginal relief band costs 26.5%
The headline Corporation Tax rates for 2026/27 are 19% and 25%. Between £50,000 and £250,000 of profit, neither is the rate that applies to your next pound. That pound is taxed at 26.5%.
Where the 26.5% comes from
HMRC does not publish a 26.5% rate. It is what the published rules produce. Profit above £50,000 is charged at the 25% main rate, then reduced by marginal relief of 3/200 of the distance between your profit and £250,000.
Because the relief shrinks as profit rises, each extra pound both attracts 25% and removes some relief. Adding those together gives the 26.5% you actually pay on that pound.
This is why the average rate and the marginal rate differ inside the band, and why the average rate is the wrong number to use when deciding whether to take another pound of profit.
What each profit level costs in 2026/27
| Taxable profit | Corporation Tax | Marginal relief | Average rate | Rate on the next pound |
|---|---|---|---|---|
| £40,000 | £7,600.00 | — | 19% | 19% |
| £50,000 | £9,500.00 | — | 19% | 26.5% |
| £100,000 | £22,750.00 | £2,250.00 | 22.75% | 26.5% |
| £150,000 | £36,000.00 | £1,500.00 | 24% | 26.5% |
| £250,000 | £62,500.00 | — | 25% | 25% |
| £300,000 | £75,000.00 | — | 25% | 25% |
Every figure above is calculated by the same engine as the calculators, using the configured 2026/27 rules. The limits assume a 12-month accounting period and no associated companies: both reduce the limits, which moves the band and changes these figures.
Why this changes a director pay decision
Director salary and the employer National Insurance on it are company costs, so they reduce taxable profit. Inside the band, each pound of that cost relieves Corporation Tax at 26.5% rather than 25%. That does not make a higher salary automatically better, because the salary is then taxed personally and attracts National Insurance, but it changes the arithmetic the comparison has to do.
At £150,000 of profit before director pay, the highest estimated take-home among the combinations tested uses a salary of £4,996 and a dividend of £110,328, leaving £34,676 of Corporation Tax and an estimated take-home of £85,321.
What this page does not cover
- Associated companies, which divide the limits between them.
- Accounting periods shorter or longer than 12 months, which pro-rate the limits.
- Periods that span a change in the rates or limits.
- Reliefs and allowances that change taxable profit before this calculation starts.
This page explains a rule and shows its arithmetic. It is not tax advice, and it does not suggest a way to reduce Corporation Tax. Read the methodology and official sources, check the current rates and thresholds, then compare salary and dividend options for your own profit.