UK Corporation Tax Rates 2026: Small Profits, Marginal Relief & Planning
Corporation Tax now runs on a two-tier system with marginal relief in between. Here's how UK SMEs should model their tax bill.
6 min read · 22 January 2026
The two-tier corporation tax system
Since April 2023 the UK has run a two-tier Corporation Tax. Profits up to £50,000 are taxed at the 19% small profits rate. Profits above £250,000 are taxed at the 25% main rate. Between those thresholds, marginal relief tapers the effective rate.
For a company with £150,000 of profit, the effective rate lands around 22.75% — not 25%.
Associated companies dilute your allowances
The £50,000 and £250,000 limits are divided by the number of associated companies. Two associated companies share £25,000 and £125,000 respectively. This catches family investment companies, holding structures and side ventures that share common control.
We often see owner-managers pay unnecessary tax simply because a dormant company they forgot about is still associated. A short structuring review usually fixes it.
Legitimate reliefs to build into your year-end plan
R&D tax credits, capital allowances (including the £1m Annual Investment Allowance and full expensing), Patent Box, group loss relief and the SME loan interest rules all reduce the effective rate — often materially.
The window for most of these closes at year end, so planning in month 10 is far more valuable than planning in month 13.