What is Corporation Tax?
Corporation Tax is the tax companies pay on profits. Here is how the rates and bands work from April 2023 onwards.
In one sentence
Corporation Tax is the tax UK limited companies pay on profits, 19% on profits up to £50,000, 25% on profits above £250,000, with marginal relief in between (since April 2023).
Quick answer
- 19% small profits rate: profits up to £50,000
- 25% main rate: profits above £250,000
- Marginal relief between £50,000 and £250,000
- Thresholds are divided by the number of associated companies
What is UK Corporation Tax?
Corporation Tax is the direct tax levied by HMRC on the taxable profits made by UK limited companies, foreign companies with UK branches, and corporate associations (such as clubs and co-operatives).
Unlike sole traders who pay Income Tax on business profits via Self Assessment, a limited company is a separate legal entity. The company itself pays Corporation Tax on its net profit before any dividends are paid to shareholders.
UK Corporation Tax rates for 2026/27
Corporation Tax rates are structured into three main tiers based on your company's annual taxable profit:
| Profit band | Corporation Tax rate | How it works |
|---|---|---|
| Up to £50,000 | 19% Small Profits Rate | Applies to small companies with taxable profit up to £50,000 |
| £50,001 to £250,000 | 19% to 25% (Marginal Relief) | Main 25% rate applies, reduced by Marginal Relief (effective marginal rate 26.5%) |
| Over £250,000 | 25% Main Rate | Full 25% tax applies to all taxable profits |
The Associated Companies rule
The £50,000 and £250,000 profit thresholds are divided by the total number of associated companies controlled by the same person or group of people.
For example, if you own 100% of two separate active trading limited companies:
- The Small Profits Rate threshold drops from £50,000 to £25,000 per company.
- The Main Rate threshold drops from £250,000 to £125,000 per company.
Dormant companies and passive holding companies without business activity are excluded from the associated company count, but active group entities must be counted.
Worked calculation: £100,000 taxable profit
For a standalone limited company with a taxable profit of £100,000, tax is calculated using the main rate minus Marginal Relief:
- Step 1 (Main Rate calculation): £100,000 × 25% = £25,000
- Step 2 (Marginal Relief deduction): 3/200 × (£250,000 - £100,000) = 0.015 × £150,000 = -£2,250
- Step 3 (Final Tax Owed): £25,000 - £2,250 = £22,750 (effective rate 22.75%)
How accounting profit becomes taxable profit
Corporation Tax is calculated on taxable profit, which is usually different from the net profit shown on your profit and loss account:
- Start with Accounting Profit: Your gross revenue minus allowable business expenses and staff salaries.
- Add Back Disallowed Expenses: Client entertaining, legal costs for capital purchases, non-trade donations, and book depreciation.
- Deduct Capital Allowances: Annual Investment Allowance (AIA) or Full Expiring relief on qualifying plant and machinery instead of depreciation.
- Apply Tax Losses: Deduct brought-forward trading losses or group relief.
- Multiply by Tax Rate: Calculate Corporation Tax due on the net figure.
Filing and payment deadlines for Corporation Tax
Corporation Tax compliance has two separate deadlines that catch many business owners:
- Payment Deadline: 9 months and 1 day after the end of your company accounting period. (For example, if your financial year ends 31 March, tax is due 1 January).
- Filing CT600 Return Deadline: 12 months after the end of your accounting period.
Notice that the payment deadline comes before the filing deadline. Paying late triggers automatic interest charges from HMRC.
Read our guide on Corporation Tax accounting services or use our free Company Profit & Corporation Tax Calculator to estimate your tax bill.
Need help with Corporation Tax or CT600 filing?
Book a 20-minute call with an experienced UK accountant. We will review your allowable deductions, capital allowances, associated companies, and Corporation Tax return.
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