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Corporation tax, and the rate on your next pound
Most calculators give you a bill. The number that changes a decision is the marginal rate, and between £50,000 and £250,000 of profit it is 26.5%, not 25%.
- 19%up to £50,000
- 26.5%£50,000 to £250,000
- 25%above £250,000
Assumes a full 12-month accounting period and no franked investment income, so augmented profits equal taxable profits. A shorter period pro-rates both thresholds. This is an estimate to plan with, not a computation to file: your accountant produces the return.
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Why the middle band costs more than the top one
This is the part that surprises people, and it is arithmetic rather than a quirk.
Above £250,000 you pay 25% and that is the end of it. Between £50,000 and £250,000 you also pay 25%, but marginal relief is tapering away underneath you at the same time, so every extra pound of profit costs you 25p in tax and a further 1.5p in lost relief. That is the 26.5%.
It matters at the moment a director is deciding whether to bring a purchase forward, defer an invoice, or take profit as salary. A company on £240,000 keeps 73.5p of the next pound. The same company on £260,000 keeps 75p. Knowing which side of that you are on is worth more than the headline bill.
The other thing worth checking is associated companies. Both thresholds are divided by the number of companies under common control plus one, so a group of four hits the main rate at £62,500 rather than £250,000. Businesses restructure without noticing they have moved themselves up a band.
Related
Corporation tax is on profit, and profit depends on what actually reaches you. If payments are the constraint rather than the tax: work out interest on an overdue invoice, get paid faster by card or bank or open a business account.
Frequently asked questions
19% on profits up to £50,000, 25% on profits above £250,000, and marginal relief in between. The thresholds are divided by the number of associated companies plus one, so a group of four companies sees them at a quarter of the headline figures.
It is the effective rate on each additional pound of profit inside the marginal relief band, and it is higher than the 25% main rate. Marginal relief tapers away as profits rise, so you pay 25% on the profit and lose relief at the same time. It is the number that matters when you are deciding whether to take more profit this year or next.
A reduction that smooths the jump between 19% and 25%. It is calculated as three two-hundredths of the difference between your profits and the upper limit, and it falls to nothing once you reach that limit. Without it a company on £50,001 would pay far more than one on £50,000.
Broadly, another company under the same control, in the UK or overseas. Each one divides both thresholds, so associated companies can move you into a higher band without your own profits changing at all. The definition has edge cases and is worth checking with your accountant rather than assuming.
No. It assumes a full 12 months. A shorter period pro-rates both thresholds, so a six-month period halves them. It also assumes no franked investment income, which means augmented profits and taxable profits are the same figure.
No, and you should not try. It is an estimate to plan with. Your accountant produces the computation and the return, and there are reliefs this deliberately ignores, including R&D, capital allowances and losses carried in or back.
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