2 min read
Definition
The marginal rate of tax is the rate charged on the next pound of profit or income, as opposed to the average rate across the whole. It rises as you move into higher bands.
In plain terms
It is the rate that applies to your last slice of profit — which can be higher than your overall average because of tiered bands and reliefs like corporation-tax marginal relief.
Why it matters for your company
Understanding your marginal rate matters for decisions at the edges — whether an extra pound of profit, a bonus or a dividend is worth taking after tax. It is central to tax planning around the rate bands.
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