If you run a limited company in the UK, corporation tax is your single biggest direct tax cost. The rate you pay depends entirely on your company's taxable profit, not your turnover. And since April 2023, the old flat 19% rate has been replaced with a tiered system. Many directors still assume they pay 19% across the board. That is no longer correct.
This guide explains how much corporation tax you pay for the 2025/26 financial year, with exact rates, worked examples, and the reliefs that can reduce your bill. We are ICAEW qualified accountants, and every number here is current for the 2025/26 tax year (accounting periods starting on or after 1 April 2025).
The Two Corporation Tax Rates for 2025/26
There are two main rates. Which one applies depends on your company's augmented profits. That is your taxable profit plus any dividends received from other companies.
- Small profits rate: 19% on profits up to £50,000.
- Main rate: 25% on profits over £250,000.
- Marginal relief: Between £50,000 and £250,000, you pay a blended rate between 19% and 25%.
The small profits rate applies if your augmented profits are £50,000 or less. The main rate applies if they are £250,000 or more. Between those figures, marginal relief gradually increases your effective rate from 19% up to 25%.
These thresholds are divided by the number of associated companies. If you control two limited companies, the £50,000 threshold drops to £25,000 for each. If you control three, it drops to £16,667 each. Associated companies include UK and overseas companies under common control, including dormant companies unless they are genuinely inactive.
Worked Examples: What You Actually Pay
Let us run through four common scenarios. These use the 2025/26 rates.
Example 1: A consultancy Ltd with £40,000 profit
One director, no associated companies. Profit is £40,000. Augmented profits are £40,000 (no dividends received).
- Corporation tax at 19%: £7,600
- Effective rate: 19%
- Net profit after tax: £32,400
Straightforward. The small profits rate applies.
Example 2: A software company with £180,000 profit
Three directors, no associated companies. Profit is £180,000. No dividends received.
- Augmented profits: £180,000 (between £50,000 and £250,000)
- Marginal relief applies
- Corporation tax: 25% on £180,000 = £45,000
- Minus marginal relief: £6,937.50 (standard formula)
- Net tax: £38,062.50
- Effective rate: approximately 21.15%
This company pays an effective rate of roughly 21%, not 19% and not 25%. Marginal relief smooths the transition.
Example 3: A manufacturing Ltd with £420,000 profit
Two directors, no associated companies. Profit is £420,000.
- Augmented profits: £420,000 (above £250,000)
- Corporation tax at 25%: £105,000
- Effective rate: 25%
- Net profit after tax: £315,000
The main rate applies in full. No marginal relief is available above £250,000.
Example 4: A husband-and-wife Ltd with £63,400 profit, two associated companies
They also control a property company (dormant) and a separate trading company (active). Three associated companies total.
- Thresholds divided by 3: small profits upper limit is £50,000 / 3 = £16,667. Lower limit is £250,000 / 3 = £83,333.
- Profit is £63,400. That is between £16,667 and £83,333.
- Marginal relief applies at the reduced thresholds.
- Corporation tax: 25% on £63,400 = £15,850
- Minus marginal relief (calculated using the reduced limits)
- Net tax: approximately £13,240
- Effective rate: approximately 20.9%
Associated companies complicate the calculation. If you control multiple companies, check your count carefully.
How Marginal Relief Works (The Formula)
If your profits fall between £50,000 and £250,000, marginal relief reduces the tax bill. The standard formula for 2025/26 is:
(Upper limit minus augmented profits) multiplied by (standard fraction) multiplied by (augmented profits divided by taxable profits)
The standard fraction for 2025/26 is 3/200 (0.015). That is the same fraction used since April 2023.
For most companies where augmented profits equal taxable profits, the formula simplifies to:
Marginal relief = (Upper limit minus profits) x 3/200
Using Example 2 above: (£250,000 minus £180,000) x 3/200 = £70,000 x 0.015 = £1,050. That is not the full relief. The full calculation also factors in the lower limit. The actual relief for Example 2 is £6,937.50. We can run the precise numbers for your company if you contact us.
The effective marginal rate between £50,000 and £250,000 is 26.5%. That is the rate at which tax increases as profit rises through the marginal relief band. So each additional £1,000 of profit in that band costs roughly £265 in extra corporation tax.
When Do You Pay Corporation Tax?
For most small companies, corporation tax is due 9 months and 1 day after the end of the accounting period. If your year-end is 31 March 2026, the payment deadline is 1 January 2027.
For companies with taxable profits above £1.5 million, quarterly instalment payments apply. You pay in four instalments starting in the seventh month of the accounting period. Most small and medium companies never reach this threshold.
You must file a CT600 corporation tax return with HMRC, even if you have no tax to pay. The filing deadline is 12 months after the year-end, but the payment deadline is earlier (9 months and 1 day). Late filing penalties start at £100 and escalate quickly.
New companies receive a CT41G form from HMRC within weeks of incorporation. That form asks for your accounting year-end date and other details. Respond promptly to avoid automatic penalties.
What Reduces Your Corporation Tax Bill?
Several reliefs and deductions can lower your taxable profit and therefore your corporation tax. These are the most common.
Capital Allowances
If you buy plant, machinery, computers, vehicles, or equipment for your business, you can claim capital allowances. The Annual Investment Allowance (AIA) gives 100% relief on most plant and machinery up to £1 million per year. That means you deduct the full cost from your profits in the year of purchase.
Full Expensing is available for limited companies on most main-rate plant and machinery. It is effectively a 100% first-year allowance with no cap. It applies to new assets only, not second-hand. This is more generous than the AIA for companies buying expensive new equipment.
For cars, the rules differ. Low-emission cars (CO2 under 50g/km) qualify for 100% First Year Allowance. Higher-emission cars attract 6% or 18% writing-down allowances depending on CO2 emissions.
R&D Tax Credits
If your company undertakes research and development in science or technology, you can claim R&D tax credits. For accounting periods starting on or after 1 April 2024, the merged scheme applies. Loss-making companies spending more than 30% of their total costs on R&D can use the Enhanced R&D Intensive Scheme (ERIS).
The rates are complex and depend on whether you are profit-making or loss-making. We have a dedicated guide on R&D tax credits if your company qualifies.
Structures and Buildings Allowance
If you buy or construct commercial property, you can claim 3% per year on the construction cost. This is a straight-line deduction over 33.33 years. It applies to new builds and some conversions.
Director Salaries and Pension Contributions
Salaries paid to directors and employees are deductible against corporation tax, provided they are at a commercial rate. Employer pension contributions are also deductible. These reduce your taxable profit directly.
Dividends are not deductible. You pay corporation tax on the full profit, then distribute the remainder as dividends. That is why salary and pension planning matters. For more detail, read our guide on director pay and dividends.
Other Deductions
Standard business expenses are deductible: rent, rates, utilities, insurance, marketing, professional fees, travel, and staff costs. Entertainment of clients is not deductible (except for staff entertainment under the annual function exemption).
If you work from home, you can claim a proportion of your household costs. The simplified method allows £6 per week without receipts. The actual method requires a fair apportionment of utilities, mortgage interest (not capital), council tax, and insurance.
How to Calculate Your Corporation Tax
The process runs like this:
- Start with your net profit per the accounts (after deducting all allowable expenses).
- Add back disallowable items: client entertainment, depreciation, political donations, fines, capital expenditure (if capital allowances are claimed separately).
- Deduct capital allowances and any other reliefs.
- The result is your taxable profit.
- Apply the appropriate rate: 19%, 25%, or marginal relief.
Depreciation is added back because capital allowances replace it. You cannot claim both. Most companies claim capital allowances instead of depreciation for tax purposes.
If your company has associated companies, divide the thresholds by the total number of associated companies (including the company itself). If you are unsure whether a company is associated, check the control test: do you or your connected persons hold more than 50% of the shares or voting rights?
What About Close Companies?
Most small UK limited companies are close companies (controlled by five or fewer participators). Close company status affects a few tax rules:
- Loans to participators (directors) trigger S455 tax at 33.75% if not repaid within 9 months and 1 day of the year-end.
- Benefits in kind to directors and their families are reportable on form P11D.
- Expenses paid to directors may need to be reported.
Close company status does not change the corporation tax rate itself. The 19%, 25%, and marginal relief rates apply equally to close and non-close companies.
Common Mistakes Directors Make
Here are the errors we see most often when calculating corporation tax.
Confusing turnover with profit. Corporation tax is on profit, not turnover. A company turning over £500,000 with a 10% margin pays tax on £50,000 profit, not £500,000. We see directors panic about corporation tax bills that simply do not apply.
Forgetting associated companies. If you own two companies, the £50,000 threshold halves. If you own three, it thirds. Directors often miss dormant companies they incorporated years ago.
Ignoring marginal relief. Some directors assume they pay 25% on all profit once they cross £50,000. That is wrong. Marginal relief means the effective rate climbs gradually, not in a cliff edge.
Missing the payment deadline. Corporation tax is due 9 months and 1 day after the year-end. Many directors assume it aligns with the filing deadline (12 months). It does not. Late payment interest accrues from day one.
Should You Use an Accountant for Corporation Tax?
You can file your own CT600 return through HMRC's free online service. For a simple company with one director, straightforward income, and no capital allowances, it is manageable. But the moment you have associated companies, capital expenditure, R&D claims, or complex director loan accounts, the calculation gets harder.
The marginal relief calculation alone trips up many DIY filers. HMRC's online system calculates it automatically if you enter the correct data, but entering the wrong associated company count or augmented profit figure produces the wrong result.
As ICAEW qualified accountants, we handle corporation tax for companies across every sector. If your profit structure is anything beyond the simplest case, a professional review saves more than it costs. You can see our services here or get in touch for a specific quote.
The penalty for filing an incorrect return (even unintentionally) can reach 100% of the underpaid tax. That is a risk worth avoiding.
Final Numbers for 2025/26
To summarise the key figures:
- Small profits rate: 19% on profits up to £50,000
- Main rate: 25% on profits over £250,000
- Marginal relief fraction: 3/200 (0.015)
- Effective marginal rate in the relief band: 26.5%
- Thresholds divided by number of associated companies
- Payment deadline: 9 months and 1 day after year-end
- Filing deadline: 12 months after year-end
If your company's profit sits between £50,000 and £250,000, the effective rate is somewhere between 19% and 25%. Use the marginal relief formula or ask your accountant to run it. The difference between the wrong rate and the right rate can be thousands of pounds.
For a full breakdown of how corporation tax interacts with your director's salary and dividend strategy, read our guide on director pay and dividends. If you are considering incorporating, our incorporation guide covers the tax implications of moving from sole trader to limited company.