What Is Corporation Tax?
A Clear Guide for UK Limited Companies
What is corporation tax? Corporation tax is a tax paid by UK limited companies on their taxable profits. If you run a UK limited company, understanding what corporation tax is — including the current rates, deadlines, and how to calculate it — is one of the most important things you can do for your finances. Yet many directors — particularly those who are new to running a company — are unclear about exactly how it works, when it is due, and how it is calculated. This guide explains everything you need to know about corporation tax in the UK for the 2025/26 tax year, in plain language.
What Is Corporation Tax — Key Facts for 2025/26
What is corporation tax? Here is a quick overview before diving into the detail:
- What is corporation tax: A direct tax on UK limited company profits
- What is the corporation tax rate: 19% (profits up to £50,000) or 25% (profits above £250,000)
- What is corporation tax paid on: Taxable profit — turnover minus allowable expenses
- What is the corporation tax deadline: 9 months and 1 day after accounting year end
- What is the corporation tax return called: CT600 — filed within 12 months of year end
- What is corporation tax marginal relief: A graduated rate for profits between £50,000 and £250,000
With those key facts in mind, the rest of this guide explains what corporation tax is, how it is calculated, when it is due, and the most effective ways to reduce your bill legally. Use our free corporation tax calculator for an instant 2025/26 estimate.
What you will learn in this guide
What corporation tax is and who pays it · The 2025/26 rates including marginal relief · How to calculate your bill · When and how to pay · Legitimate ways to reduce your liability · The difference between corporation tax and other business taxes
What Is Corporation Tax?
What is corporation tax in the UK? Corporation tax is a direct tax paid by UK limited companies on their taxable profits. It applies to profits from trading activities, investments, and the sale of assets. Unlike income tax, which is paid by individuals, corporation tax is paid by the company itself — separately from any personal tax the director may owe on their salary or dividends.
Corporation tax has existed in the UK since 1965. Every UK-resident limited company, as well as certain other organisations such as clubs and associations, is required to pay it on profits made during each accounting period.
Who Pays Corporation Tax?
Corporation tax applies to:
- UK limited companies
- Foreign companies with a UK permanent establishment
- Clubs, societies, associations and co-operatives
- Housing associations
- Members’ clubs
Sole traders and partnerships do not pay corporation tax. If you operate as a sole trader, you pay income tax and National Insurance on your profits through your annual self-assessment return. Corporation tax is only a consideration once you incorporate as a limited company. To compare the two structures, use our sole trader vs limited company calculator.
UK Corporation Tax Rates 2025/26
The UK operates a two-rate corporation tax system for 2025/26, with a marginal relief band between the two rates. This structure was reintroduced in April 2023 when the main rate increased from 19% to 25%.
| Profit Level | Rate | Name |
|---|---|---|
| Up to £50,000 | 19% | Small Profits Rate |
| £50,001 – £249,999 | 19%–25% | Marginal Relief Band |
| £250,000 and above | 25% | Main Rate |
What is the Small Profits Rate?
Companies with taxable profits of £50,000 or less pay corporation tax at just 19% — the Small Profits Rate. This means that the majority of small UK limited companies continue to pay at the same rate that applied before April 2023.
Now you understand what corporation tax is and the rates that apply, the next step is calculating exactly how much your company owes. Our free corporation tax calculator UK applies the correct 2025/26 rates automatically — including marginal relief where it applies.
What is Marginal Relief?
Marginal relief exists to prevent companies earning just above £50,000 from suddenly paying 25% on their entire profit. Instead, the effective rate increases gradually from 19% to 25% as profits rise through the £50,000 to £250,000 band. The HMRC formula is:
Marginal Relief = (3/200) × (Upper Limit − Augmented Profits)
For example, on £120,000 profit: 25% × £120,000 = £30,000, minus (3/200) × (£250,000 − £120,000) = £1,950 relief. Corporation tax due = £28,050. Use our free marginal relief calculator to calculate your exact relief instantly.
How Is Corporation Tax Calculated? — Step by Step
Your corporation tax bill is calculated on your company’s taxable profits — not your turnover. Taxable profits are calculated by taking your company’s total income and deducting all allowable business expenses, capital allowances, and any available reliefs.
What counts as taxable profit?
- Trading profit from your main business activity
- Investment income (interest, dividends received from non-group companies)
- Chargeable gains on the sale of assets
What reduces your taxable profit?
- Allowable business expenses (accountancy, software, travel, office costs)
- Director salary and employer National Insurance contributions
- Capital allowances on equipment and machinery
- Employer pension contributions
- R&D tax relief if applicable
- Trading losses carried forward from previous years
⚠ Dividends are not a deductible expense
Director salary is deductible from your company’s taxable profit — reducing corporation tax. Dividends are not. They are paid from after-tax profit. This is a key distinction when planning how to extract money from your company. Use our dividend tax calculator to model the most efficient approach.
Corporation Tax Payment Deadline
Understanding when corporation tax is due is critical for every director. Missing the deadline results in interest charges and potential penalties from HMRC.
| Obligation | Deadline |
|---|---|
| Corporation tax payment | 9 months and 1 day after your accounting period ends |
| CT600 tax return filing | 12 months after your accounting period ends |
For a company with a 31 March accounting year-end, the payment deadline is 1 January and the CT600 filing deadline is 31 March of the following year. For a company with a 31 December year-end, payment is due by 1 October.
Large company quarterly payments
Companies with annual taxable profits above £1.5 million pay corporation tax in four quarterly instalments rather than a single annual payment. For most small and medium-sized limited companies, the single annual payment applies.
How to Pay Corporation Tax
Corporation tax is paid to HMRC and can be done through several methods. You will need your company’s 17-character corporation tax payment reference, which begins with your 10-digit Unique Taxpayer Reference (UTR) followed by the letter A and your accounting period identifier.
Payment methods accepted by HMRC include:
- Online banking / Faster Payments (immediate)
- CHAPS (same day)
- Bacs (3 working days)
- Debit card through the HMRC website
Credit card payments are no longer accepted by HMRC for corporation tax. Always allow enough time for the payment to reach HMRC before the deadline.
How to File Your Corporation Tax Return (CT600)
Every company must file a CT600 corporation tax return with HMRC for each accounting period, even if no corporation tax is due (for example, if the company made a loss). The CT600 must be filed online through HMRC’s system or using approved accounting software.
Most directors use a qualified accountant to prepare and file their CT600. The return requires detailed financial information including your profit and loss account, balance sheet, and tax computation. Late filing results in an automatic £100 penalty, rising significantly if the delay extends beyond three months.
How to Reduce Your Corporation Tax Bill Legally
There are several HMRC-approved strategies available to UK limited company directors to legitimately reduce their corporation tax liability. Understanding what corporation tax allowances are available is the first step to reducing your bill.
1. Maximise allowable expenses
Every pound of allowable business expense reduces your taxable profit — and therefore your corporation tax bill — by that amount. Common expenses directors miss include home office costs, professional subscriptions, business travel, and training directly related to the business.
2. Director salary as a deductible expense
Your director salary is an allowable business expense that reduces your company’s taxable profit. Most directors pay themselves £12,570 (the personal allowance) in 2025/26. At the 25% corporation tax rate, this saves the company approximately £3,142 in corporation tax — more than enough to offset the £1,135 employer NI cost.
3. Employer pension contributions
Company contributions to a director’s pension are fully deductible against corporation tax. A £10,000 employer pension contribution at the 25% Main Rate saves £2,500 in corporation tax. Use our limited company tax calculator to model pension contributions in your overall tax position.
4. Capital allowances
The Annual Investment Allowance (AIA) allows companies to deduct 100% of qualifying plant and machinery costs — up to £1 million — in the year of purchase. This provides immediate tax relief rather than spreading the deduction over several years through depreciation.
5. R&D tax relief
If your company develops new products, processes, or software, HMRC’s Research and Development tax relief scheme can significantly reduce your corporation tax bill. Smaller companies (SMEs) can deduct 186% of qualifying R&D expenditure under the SME scheme.
6. Timing of income and expenditure
The timing of when income is recognised and expenditure is incurred can affect your taxable profit for a given accounting period. Bringing forward deductible expenses into a high-profit year — or delaying income recognition where legitimate — can reduce your tax liability for that period.
Calculate Your Corporation Tax Bill
Use our free UK corporation tax calculator to see your exact bill for 2025/26, including automatic marginal relief calculation.
Use Corporation Tax Calculator →Corporation Tax vs Other Business Taxes
Corporation tax is one of several taxes a UK limited company may need to deal with. Understanding how it differs from other taxes helps directors plan effectively.
| Tax | Who pays it? | What it applies to |
|---|---|---|
| Corporation tax | The company | Company taxable profits |
| Income tax | The director personally | Salary above the personal allowance |
| Dividend tax | The director personally | Dividends received above £500 |
| Employer NI | The company | Director salary above £5,000 |
| Employee NI | The director personally | Salary above £12,570 |
| VAT | The company (if registered) | Taxable turnover above £90,000 |
Associated Companies and Corporation Tax Thresholds
If your company has associated companies under common control, the £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. For example, if you have two companies under common control, the Small Profits Rate threshold drops to £25,000 and the Main Rate threshold to £125,000 for each company. This is an important consideration for directors who operate multiple limited companies.
Frequently Asked Questions About Corporation Tax
Final Thoughts
Understanding what corporation tax is and how it works is a fundamental requirement for every UK limited company director, but it does not have to be complicated. Understanding the current rates, knowing your payment deadline, and working with a qualified accountant to maximise legitimate deductions puts you in complete control of your company’s tax position.
For 2025/26, most small limited companies continue to benefit from the 19% Small Profits Rate on profits up to £50,000. If your profits are approaching or exceeding this threshold, the marginal relief calculator will show your exact effective rate. For a full view of all taxes you pay as a director — including corporation tax, dividend tax, and salary costs — use the limited company tax calculator.
All rates referenced in this guide are sourced from HMRC’s official corporation tax guidance and are correct for the 2025/26 tax year.
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