The three bands in practice
| Taxable profits | What you pay | Rate on the next £1 |
|---|---|---|
| Up to £50,000 | 19% (small profits rate) | 19p |
| £50,000 – £250,000 | 25% less marginal relief | 26.5p |
| £250,000 and over | 25% (main rate) | 25p |
Worked example: profits of £100,000 → £25,000 at 25% minus marginal relief of £2,250 (the standard 3/200 fraction of £250,000 − £100,000) = £22,750, an average rate of 22.75% — but the last pound was taxed at 26.5p.
Why the 26.5% marginal band changes decisions
If your profits sit between £50,000 and £250,000, anything that reduces taxable profit saves tax at 26.5% — better relief than either the small companies or big companies get. That makes this band the sweet spot for employer pension contributions, bringing forward equipment purchases (100% capital allowances), and paying salary or bonuses before year end. The same logic in reverse: income pushed into the band is expensive.
Associated companies: the £50,000 band shrinks
The thresholds are divided by the number of associated companies — broadly, companies under common control at any point in the period. Run two active companies and each gets bands of £25,000/£125,000; run four and it’s £12,500/£62,500. Dormant companies are ignored, and there are exceptions for certain passive holding companies. If you own more than one company, this single rule often changes the whole tax picture — and it’s routinely missed on DIY returns.
Planning around your year end
Marginal relief is calculated in the Company Tax Return — there’s nothing to claim separately, but there’s plenty to plan. We prepare CT600s with the computation done properly (bands, associated companies, short periods) and flag the planning opportunities before your year end, not after. Call 0114 327 1480.
Frequently asked questions
Related
Need help with Making Tax Digital?
Ask us anything about MTD, or request that we register or file for you. Call 0114 327 1480 or send a message below.