Corporation tax · Director guide · Updated October 2026
Corporation tax explained: how it works for UK limited companies.
Written by Iftikhar Rashid FCCA, Partner, RR Accountants. 16 years in practice, specialist in limited company directors.
What is corporation tax?
Corporation tax is the tax on UK limited company profits. It is charged at rates between 19% and 25% depending on profit level: with marginal relief for profits between the small and main rate thresholds. Every company must pay any tax due within 9 months and 1 day of the accounting year end and file the CT600 within 12 months. Unlike income tax, corporation tax is on profit: after allowable expenses, capital allowances, pension contributions, and reliefs have been deducted. Source: gov.uk/corporation-tax-rates.
Who this applies to: All active UK limited companies. Including SPV property companies, contractor PSCs, and trading companies.
Corporation tax rates (2026/27)
Source: gov.uk/corporation-tax-rates.
| Profit level | Rate | Notes |
|---|---|---|
| Profits up to £50,000 | 19% (small profits rate) | Most small companies fall here |
| Profits £50,001 – £250,000 | 26.5% marginal (with 3/200 marginal relief) | Effective rate tapers between small and main rate |
| Profits above £250,000 | 25% (main rate) | Companies with higher profits |
Associated companies rule: If a director owns or controls multiple companies, the £50,000 and £250,000 profit thresholds are divided between them. This can push companies into the marginal or main rate band sooner than expected.
How corporation tax is calculated
Company turnover (total revenue)
− Allowable business expenses
− Employer pension contributions
− Capital allowances / Annual Investment Allowance
− R&D enhanced deduction (if applicable)
− Other allowable deductions
= Taxable profit
× Corporation tax rate (19% small / 25% main / 26.5% marginal)
− Marginal relief (if applicable)
= Corporation tax due
Allowable deductions (reduce CT)
- ✓Salaries + employer NI
- ✓Employer pension contributions
- ✓Capital allowances on equipment
- ✓Professional fees (accountancy, legal)
- ✓Advertising and marketing costs
- ✓Interest on business loans
- ✓R&D qualifying expenditure
- ✓Business travel and subsistence
NOT deductible (do not reduce CT)
- ✕Dividends paid to shareholders
- ✕Personal expenses of directors
- ✕Fines and penalties
- ✕Most entertainment costs
- ✕Client hospitality above HMRC limits
- ✕Personal use portion of mixed-use assets
Corporation tax deadlines
CT600 return filing
12 months after accounting year end
Filing deadline is one year after year-end. This is different from the payment deadline.
CT payment due
9 months + 1 day after accounting year end
For a 31 March year-end: CT due 1 January. For a 31 December year-end: due 1 October the following year.
Large company quarterly payments
Months 7, 10, 13, 16 of accounting period
Companies with augmented profits above £1.5m (the large company threshold) pay quarterly. Very large companies above £20m pay earlier instalments.
Corporation Tax and your HMRC business tax account
You do not get a Corporation Tax bill. HMRC expects the company to work out its own tax, pay it and report it by the deadline.
That is done through your company's HMRC business tax account. The account is where a company checks its tax position, files returns and makes payments for taxes it has registered for, including Corporation Tax, VAT and PAYE for employers.
When a company is registered with Companies House it is usually set up for Corporation Tax at the same time. If it was not, Corporation Tax services are added to the business tax account when the company starts to do business. HMRC then posts an activation code to the registered office address, usually within 10 days (21 days if the director lives abroad).
Each accounting period has its own 17-character Corporation Tax payment reference. It is on the notice to deliver a tax return, on HMRC reminders and in the company's HMRC online account. Using the wrong reference can delay a payment or pay a different bill.
A Company Tax Return is still needed if the company made a loss or owes nothing. If nothing is due, HMRC must be told using the 'nil to pay' form.
Business tax in the UK: which taxes apply to a limited company
| Tax | Who pays it | When it applies |
|---|---|---|
| Corporation Tax | The company | On company profits in each accounting period (this page). |
| PAYE and National Insurance | The company, for employees and directors on payroll | When the company pays salary: it deducts Income Tax and National Insurance and pays employer's National Insurance too. |
| VAT | The company | Must register if taxable turnover over the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. Voluntary registration is allowed below that. |
| Dividend tax | The shareholder, not the company | Shareholders pay tax on dividends above the £500 dividend allowance; the company does not pay tax on the dividend payment. |
A sole trader is taxed differently: Income Tax through Self Assessment on business profits, and GOV.UK says a sole trader must register for Self Assessment when they earn more than £1,000 in a tax year.
Legitimate ways to reduce corporation tax
Employer pension contributions
Fully deductible. No employer NI. No employee NI. One of the most tax-efficient forms of director remuneration. Subject to the £60,000 annual allowance.
Annual Investment Allowance (AIA)
100% first-year deduction on qualifying plant and machinery, up to £1,000,000 per year. Reduces taxable profit in the year of purchase.
Research and development relief
Enhanced deduction on qualifying R&D expenditure under the merged RDEC scheme (or the ERIS scheme for R&D-intensive loss-making SMEs). Only where activity genuinely qualifies. HMRC scrutiny is high since 2023.
Salary planning
Directors can adjust their salary level to reduce Corporation Tax within the National Insurance trade-off. This works alongside salary/dividend planning.
Loss relief
Trading losses in one period can be carried forward against future profits, or carried back against prior year profits. SPV property losses have different rules.
Timing of capital expenditure
Purchasing qualifying assets before year-end brings forward the tax relief. Timing of large purchases can reduce the CT bill in a specific year.
Corporation tax: frequently asked questions
What is corporation tax?
Corporation tax is the tax levied on the profits of UK limited companies. Unlike income tax (which individuals pay), corporation tax is charged on company profits. After allowable expenses, capital allowances, and reliefs have been deducted. Every UK limited company must file a CT600 return and pay any tax due. See gov.uk/corporation-tax-rates.
What is the UK corporation tax rate in 2026?
For 2026/27, the UK corporation tax rate is 19% on profits up to £50,000 (small profits rate) and 25% on profits above £250,000 (main rate). Profits between the two thresholds attract marginal relief at an effective rate of 26.5% (calculated using a 3/200 marginal relief fraction).
What is marginal relief for corporation tax?
Marginal relief applies to companies with profits between £50,000 and £250,000. It tapers the effective tax rate between the small profits rate (19%) and the main rate (25%), so profits in this band are not simply taxed at the higher rate from the first pound. The relief is calculated using the 3/200 marginal relief fraction (giving an effective marginal rate of 26.5% on profits within the band).
When is corporation tax due?
For most companies, corporation tax payment is due 9 months and 1 day after the end of the company's accounting period (1 January for a 31 March year-end). The CT600 return is due 12 months after the period ends (31 March the following year). Large companies with augmented profits above £1.5m must pay in quarterly instalments; very large companies above £20m pay on an even earlier schedule.
What expenses can a limited company deduct from corporation tax?
Allowable deductions include: salaries and employer NI, rent and business rates, equipment costs (via capital allowances or AIA), professional fees (accountancy, legal), advertising and marketing, travel on business, software and subscriptions, pension contributions, and interest on business borrowing. Personal expenses of directors are generally not deductible. The rules on expenses are detailed. Specific categories require care.
What is the CT600 and who needs to file one?
The CT600 is HMRC's corporation tax self-assessment return. Every active UK limited company must file one annually, even if the company made a loss and owes no tax. A dormant company may not need to file a CT600 but may need to notify HMRC. The return covers the company's accounting period and reconciles profit with taxable profits after adjustments.
Can a company reduce its corporation tax through pension contributions?
Yes. Employer pension contributions are fully deductible as a business expense, reducing taxable profit. For a company paying the main 25% rate of corporation tax, £10,000 of employer pension contributions reduces the CT bill by £2,500. Pension contributions made by the company on behalf of a director do not attract employer NI. Making them one of the most tax-efficient ways to remunerate a director. Subject to the £60,000 annual allowance (tapered above £260,000 adjusted income).
What is R&D tax relief for limited companies?
R&D (Research and Development) tax relief allows qualifying companies to deduct a higher percentage of qualifying R&D expenditure from their taxable profits, or claim a cash credit. From April 2024, a single merged RDEC scheme applies to most companies (with a separate ERIS scheme for R&D-intensive loss-making SMEs). Only activities that advance science or technology and involve genuine technical uncertainty qualify. HMRC has increased enquiries into R&D claims. Contemporaneous evidence is essential.
What is an HMRC business tax account?
A business tax account is the HMRC online account a business uses to manage its taxes. A limited company uses it to check its Corporation Tax position, file its Company Tax Return, pay Corporation Tax and manage other taxes it is registered for, such as VAT and PAYE for employers. It can be accessed with the company's sign-in details.
Does HMRC send a Corporation Tax bill?
No. GOV.UK says you do not get a bill for Corporation Tax. The company works out its profit, prepares a Company Tax Return and pays by the deadline using the 17-character payment reference for that accounting period. You will usually be sent a notice to deliver a tax return and reminders, but the company is responsible for working out and paying the tax.
What business taxes does a UK limited company pay?
A limited company pays Corporation Tax on its profits. If it has registered for VAT it also accounts for VAT, and if it pays salaries through payroll it deducts PAYE and pays employer's National Insurance. Shareholders, not the company, pay tax on dividends above the £500 dividend allowance.
Related guides and services
- Corporation tax service: CT600 filing
- Accountants for limited company directors
- Salary vs dividend for directors
- Company formation
- Annual accounts and CT600
- R&D tax credits
- Sole trader vs limited company
- How to pay HMRC
CT planning
CT bill higher than expected? Let's look at it.
Book a 30-minute call. We review your CT position, identify any legitimate reliefs you may have missed, and give you a clear picture before you pay.
Book a call →Iftikhar Rashid FCCA · 16 years · Specialist in limited company directors