Corporation Tax (CT) is the tax that UK limited companies and other corporate bodies pay on their taxable profits. The current main rate is 25% for profits over £250,000, and the small profits rate is 19% for profits up to £50,000. Companies with profits between these thresholds benefit from marginal relief, giving an effective rate between 19% and 25%.
What is Corporation Tax?
Corporation Tax is charged on the profits your company makes. This includes trading profits (income from your business activities after deducting allowable expenses), investment income (interest, rental income received by the company), and chargeable gains (profits from selling assets above their cost).
Unlike income tax, which follows the UK tax year from 6 April to 5 April, Corporation Tax is based on accounting periods. These typically correspond to your company's financial year, though there are rules for periods longer than 12 months.
Who pays Corporation Tax?
Corporation Tax applies to:
- UK-resident private limited companies (Ltd)
- Public limited companies (PLC)
- Limited liability partnerships (LLPs) that are treated as companies for tax purposes
- Foreign companies with a permanent establishment in the UK
- Clubs, societies, associations, and co-operatives
Sole traders and ordinary partnerships are not subject to Corporation Tax — they pay Income Tax and National Insurance on their profits instead. This is one of the key reasons some business owners choose to incorporate.
Corporation Tax rates 2026/27
The current two-rate structure has been in place since April 2023 and applies for the financial year 2026 (1 April 2026 to 31 March 2027).
| Taxable profits | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 to £250,000 | 19%–25% | Marginal relief applies — effective rate tapers between 19% and 25% |
| Over £250,000 | 25% | Main rate |
The government has confirmed the main rate will remain capped at 25% for this parliament. Read the detailed CT rates guide for 2026/27.
Marginal relief explained
If your company's taxable profits fall between £50,000 and £250,000, you pay the main rate of 25% but receive marginal relief — a deduction that reduces your effective tax rate. The formula is:
Marginal relief = (£250,000 − taxable profits) × 3/200
Worked example: A company with taxable profits of £100,000:
- Tax at 25% = £25,000
- Marginal relief = (£250,000 − £100,000) × 3/200 = £150,000 × 0.015 = £2,250
- CT payable = £25,000 − £2,250 = £22,750
- Effective rate = 22.75%
The effective marginal rate on profits between £50,000 and £250,000 is 26.5% — higher than the headline 25% rate. This is relevant for dividend planning: each additional £1 of profit in the marginal band costs more in CT than at either the full small profits or full main rate.
Associated companies and the thresholds
The £50,000 and £250,000 thresholds are divided between associated companies. Two companies under common control each have effective thresholds of £25,000 (small profits) and £125,000 (main rate). This prevents business owners from artificially splitting their operations into multiple small companies to take advantage of the lower rate.
Companies are associated if one controls the other, or both are under common control. The rules include companies controlled by the same person (or group of persons acting together). Associated company rules apply at any point during the accounting period, not just at year-end.
Accounting periods and financial years
Corporation Tax is calculated for each accounting period, which normally aligns with your company's financial year. An accounting period cannot exceed 12 months. If your accounts cover a longer period (for example, after changing your year-end), HMRC will split it into two accounting periods for CT purposes.
HMRC uses financial years (FY) running 1 April to 31 March to set CT rates. If your accounting period straddles 1 April, rates are time-apportioned between the two financial years — though since rates have not changed since April 2023, this is currently straightforward.
Corporation Tax payment deadlines
For most small and medium-sized companies, Corporation Tax is due 9 months and 1 day after the end of the accounting period. For example, a company with a year-end of 31 March 2026 must pay CT by 1 January 2027.
Large companies (taxable profits over £1.5 million) pay in quarterly instalments during the accounting period, on the 14th of months 7, 10, 13, and 16 after the start of the period.
Interest accrues on unpaid CT from the day after the due date at HMRC's current rate. Unlike income tax, there is no automatic penalty for late payment — HMRC charges interest instead, plus potential surcharge for persistent late payment.
Filing the CT600
The CT600 is the Company Tax Return form. You must file it with HMRC within 12 months of the end of the accounting period — so for a 31 March 2026 year-end, the CT600 deadline is 31 March 2027. The filing deadline is later than the payment deadline, which means you need to estimate your CT liability at payment time and correct it when you file.
The CT600 is filed online through HMRC's Corporation Tax Online service or via approved third-party software. You must also file your statutory company accounts with Companies House, though the deadline for those (nine months after the year-end for private companies) differs from the CT600 deadline.
When filing you will need:
- Company profits from your statutory accounts
- Adjustments for non-allowable expenses (entertainment, depreciation, etc.)
- Capital allowances claimed
- Any reliefs claimed (R&D, losses, group relief)
- Chargeable gains or losses on asset disposals
What expenses can you deduct?
Corporation Tax is charged on profits after deducting allowable business expenditure. Costs must be incurred wholly and exclusively for the purposes of the trade to be deductible.
Common allowable deductions include:
- Staff salaries, employer's NI, pension contributions, and benefits
- Business premises costs (rent, rates, utilities, repairs)
- IT, software, and equipment running costs
- Professional fees (accountancy, legal)
- Marketing and advertising costs
- Business insurance premiums
- Loan interest on borrowings for the business
- Training costs directly related to the current business
Non-deductible items include depreciation (replaced by capital allowances), entertainment of clients, fines and penalties, and costs with a dual personal and business purpose.
Key CT reliefs and allowances
Annual Investment Allowance (AIA)
The AIA gives 100% tax relief in the year of purchase for most plant and machinery. The AIA limit is permanently set at £1 million per year. This covers most capital expenditure for small and medium-sized businesses — machinery, equipment, IT, fixtures, and vans.
Research and Development tax relief
From April 2024, a single merged R&D scheme applies to most companies, with an enhanced rate for loss-making SMEs. Companies qualifying for R&D relief can deduct a percentage above the actual cost of qualifying R&D spend from their taxable profits, reducing CT significantly. The definition of qualifying expenditure is broad and covers staff costs, consumables, subcontracted R&D, and software.
Loss relief
If your company makes a trading loss, you can offset it against other profits in the same year (sideways loss relief), carry it back to offset against profits in the prior year (generating a CT repayment), or carry it forward indefinitely to offset against future profits. Since April 2017, losses carried forward can be offset against total profits (not just trading profits), giving greater flexibility.
Patent Box
Companies that own qualifying patents can elect for a 10% Corporation Tax rate on profits attributable to patented inventions. The Patent Box is most relevant for technology and manufacturing businesses with UK-registered IP.
Key takeaways
- The Corporation Tax main rate is 25% on profits over £250,000; the small profits rate is 19% on profits up to £50,000. Marginal relief applies between these thresholds.
- Associated companies share the profit thresholds equally — owning two companies halves each threshold to £25,000 and £125,000.
- CT is due 9 months and 1 day after the accounting period end; the CT600 must be filed within 12 months of the period end.
- The Annual Investment Allowance gives 100% first-year relief on most plant and machinery up to £1 million per year.
- Trading losses can be carried back one year for a CT refund or carried forward indefinitely against future profits.
Frequently asked questions
When do I need to pay Corporation Tax?
For most companies, Corporation Tax is due 9 months and 1 day after the end of the accounting period. For a company with a 31 March year-end, this means 1 January of the following year. Large companies with profits over £1.5 million pay in quarterly instalments during the accounting period itself.
Does a dormant company pay Corporation Tax?
A dormant company with no income, trading activity, or chargeable gains does not pay Corporation Tax. However, you must still notify HMRC that the company is dormant and file a CT600 covering any period before dormancy. HMRC may also require you to file annual accounts with Companies House even if the company is dormant.
What is the difference between the financial year and the tax year for Corporation Tax?
HMRC's financial year for Corporation Tax runs from 1 April to 31 March (for example, FY2026 covers 1 April 2026 to 31 March 2027). This differs from the income tax year, which runs from 6 April to 5 April. If a company's accounting period straddles 1 April, its profits are time-apportioned between the two financial years for rate purposes.
Can a director's salary be deducted from Corporation Tax?
Yes. A director's salary is a business expense that reduces the company's taxable profits for Corporation Tax purposes. The salary must be paid through payroll, subject to PAYE, and be commercially reasonable. Employer's National Insurance on the salary is also deductible. This is why director salary-and-dividend strategies are structured to balance CT savings against personal tax liabilities.
How does marginal relief reduce my Corporation Tax bill?
If your profits fall between £50,000 and £250,000, you pay tax at 25% and then receive a deduction using the formula: (£250,000 minus taxable profits) multiplied by 3/200. For £150,000 profit this gives marginal relief of £1,500, reducing the effective rate to approximately 24%. The relief tapers to zero at £250,000, where the full main rate applies.