Marginal relief (UK)
Marginal relief is the UK mechanism that smooths the step between the 19% small-profits rate and the 25% main rate of corporation tax. Companies with profit above £250,000 pay 25%; below £50,000 they pay 19%. Between those two thresholds, all profit is charged at 25% but a marginal relief is then deducted, calculated as 3/200 multiplied by (the upper limit minus augmented profits), scaled by (taxable profits divided by augmented profits). The effective rate on profit inside that band is 26.5%, higher than either headline rate, because the benefit of the 19% rate is clawed back as profit rises. The £50,000 and £250,000 limits are divided among associated companies, a common complication for groups.
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Example: a company with £150,000 of profit has the 25% charge reduced by marginal relief, leaving an overall effective rate of roughly 22.75% across all its profit.
Why it matters to a small business: if your profit sits between £50,000 and £250,000, marginal relief applies to your corporation tax. The 26.5% effective marginal rate is a quirk worth knowing, because it can make the timing of profit or investment genuinely matter.