Understanding UK Corporation Tax
From April 2023, UK corporation tax operates on a two-rate system. Companies with profits up to £50,000 pay the small profits rate of 19%, while those with profits above £250,000 pay the main rate of 25%. For profits between these thresholds, marginal relief applies, creating an effective rate that gradually increases from 19% to 25%.
The Marginal Relief Band
Between £50,000 and £250,000, the effective marginal rate is actually 26.5% — higher than the main rate of 25%. This is because marginal relief is withdrawn as profits increase, creating an additional effective tax charge. Companies with profits just above £50,000 face a significant jump in their marginal rate, making it worth considering strategies to keep profits below the small profits threshold.
Associated Companies
The £50,000 and £250,000 thresholds are divided equally among associated companies. Two associated companies means each gets thresholds of £25,000 and £125,000. Companies are associated if one controls the other, or both are controlled by the same person(s). Dormant companies are generally excluded.
Frequently Asked Questions
When do I need to pay corporation tax?â–¾
Most companies must pay corporation tax 9 months and 1 day after the end of their accounting period. Very large companies (profits over £1.5 million) must pay in quarterly instalments during the accounting period. The Company Tax Return (CT600) must be filed within 12 months of the accounting period end.
How can I reduce my corporation tax bill?â–¾
Legitimate strategies include maximising allowable expenses, using the Annual Investment Allowance (£1 million) for capital expenditure, making pension contributions from the company, claiming R&D tax credits if applicable, and timing income and expenses across accounting periods. Always seek professional advice for tax planning.
What counts as an associated company?â–¾
A company is associated with another if one controls the other, or both are under common control. Control means holding more than 50% of share capital, voting power, or rights to distributable profits. If your spouse owns a separate company, it may be associated. Dormant companies with no trade or investment activity are typically excluded from the count.
Calclypso Editorial Team
Corporation tax calculations verified against HMRC 2025-26 rates. Last updated: April 2026. This calculator is for estimation purposes only.