Corporation Tax 2025/26: The Hidden 26.5% Rate

Since April 2023, the simple 19% Corporation Tax rate is gone for many companies. It has been replaced by a tiered system that can create an effective marginal tax rate of 26.5% on some profits.

The Three Bands

1. Small Profits Rate (19%): Applies to profits up to £50,000.
2. Main Rate (25%): Applies to profits above £250,000.
3. Marginal Relief Band: Applies to profits between £50,000 and £250,000.

Understanding Marginal Relief

If your profit falls in the "buffer zone" (£50k - £250k), you don't pay 25% on everything. Instead, you pay 25% reduced by Marginal Relief.

However, the math often works out to a marginal rate of 26.5% on the profits within this band.

Example: £100,000 Profit

• First £50,000 is effectively taxed lower.
• The next £50,000 suffers the catch-up rate.
• Total Tax: ~£22,750 (Effective rate: 22.75%).

Impact on Dividends

Corporation Tax is paid before dividends are distributed.

• Higher Corp Tax = Less Profit Available for Dividends.
• This is why accurate calculation is vital. Our calculator automatically handles Marginal Relief to give you the exact distributable profit.

Planning Tips

• Pension Contributions: Employers pension contributions are deducted before tax, saving you 19-25% Corporation Tax instantly.
• Expenses: Ensure all allowable expenses are claimed to reduce taxable profit.

Disclaimer: Associated companies can reduce these thresholds. Consult an accountant.