UK Corporation Tax explained (2025/26)
Every UK limited company pays corporation tax on its profits. Since April 2023 the rate is no longer a flat 19% — it depends on how much profit you make, with a tapering 'marginal relief' band in the middle. Here's how it works.
Three rates, two thresholds
For the 2025/26 financial year there are effectively three outcomes depending on your taxable profit:
- Small profits rate — 19%: applies if your profits are £50,000 or less.
- Main rate — 25%: applies if your profits are £250,000 or more.
- Marginal relief: between £50,000 and £250,000 you pay the 25% main rate but get a reduction, giving a smooth taper. The effective rate on profit inside this band works out at 26.5% per extra pound.
The marginal relief formula
HMRC calculates marginal relief as:
Tax = (Profit × 25%) − (Upper Limit − Profit) × 3/200
The 3/200 figure is the standard marginal relief fraction. The £250,000 upper limit and £50,000 lower limit are reduced if you have associated companies (see below).
A company with £120,000 profit
Take a company with £120,000 taxable profit and no associated companies. It falls in the marginal relief zone:
- Main-rate tax: £120,000 × 25% = £30,000.
- Marginal relief: (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950.
- Corporation tax due: £30,000 − £1,950 = £28,050.
- Effective rate: £28,050 ÷ £120,000 = 23.4%.
Associated companies share the thresholds
If you control more than one company (or your group does), the £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. Two associated companies means the small profits ceiling drops to £25,000 each and the main-rate floor to £125,000 — pushing more profit into higher tax. This catches people running several limited companies.
Deadlines you cannot miss
Corporation tax is due 9 months and 1 day after the end of your accounting period — before the company tax return (CT600) deadline, which is 12 months after period end. Large companies (profits over £1.5m) pay in quarterly instalments instead.
Pay before you file
Common corporation tax mistakes
- Forgetting associated companies. Running several limited companies splits your thresholds, quietly raising the effective rate on each one.
- Confusing turnover with profit. Corporation tax is charged on profit after allowable expenses and capital allowances — not on sales.
- Missing the payment deadline. Tax is due 9 months and 1 day after period end, well before the CT600 filing deadline.
- Ignoring marginal relief planning. Profits in the £50k–£250k band cost 26.5% at the margin; pension contributions can be more tax-efficient than leaving cash in the company.