Corporation Tax is the tax a UK limited company pays on its profits. For the 2026/27 financial year, the small profits rate is 19% on profits up to £50,000, the main rate is 25% on profits over £250,000, and marginal relief tapers the rate in between. You file a CT600 return within 12 months of your year-end, but you pay the tax nine months and one day after it.
That is the whole system in one paragraph. The detail is where it gets fiddly, and where most directors either overpay or miss a deadline. This guide is the map. It explains what Corporation Tax actually is, walks through the rates with a worked marginal relief example, covers the CT600, the two deadlines, how associated companies change the maths, the main reliefs you can claim, and the legal ways to bring the bill down.
It is written for company directors and is the hub for our deeper guides, which we link to throughout. Use it to get the full picture, then follow the links for the parts that matter to you.
What is Corporation Tax?
Corporation Tax is a tax charged on the taxable profits of UK limited companies and some other organisations. Unlike Income Tax, there is no personal allowance and no separate rate bands for different types of income. The company calculates one figure of taxable profit, then applies the Corporation Tax rate to it.
Taxable profit is not the same as the profit in your accounts. You start with your accounting profit, then make adjustments: you add back costs that are not allowable for tax (such as client entertaining and depreciation), and you deduct tax reliefs (such as capital allowances). The result is your taxable profit, and that is what the rate is applied to.
Three types of income fall within the charge:
- Trading profits from your main business activity.
- Investment income, such as bank interest or rental income the company receives.
- Chargeable gains when the company sells an asset for more than it paid.
A UK-resident company pays Corporation Tax on its worldwide profits. A non-resident company trading through a UK branch pays only on the profits of that UK establishment. The rules are set out in HMRC's Corporation Tax guidance.
What are the Corporation Tax rates for 2026/27?
There are two main rates for the 2026/27 financial year, plus marginal relief in between. The small profits rate is 19% for taxable profits up to £50,000. The main rate is 25% for taxable profits over £250,000. Companies with profits between those two figures pay the main rate of 25% but then claim marginal relief, which reduces the effective rate.
| Taxable profit | Rate applied | Effective rate |
|---|---|---|
| Up to £50,000 | Small profits rate | 19% |
| £50,001 to £250,000 | Main rate less marginal relief | Between 19% and 25% |
| Over £250,000 | Main rate | 25% |
The two thresholds, £50,000 and £250,000, are the lower and upper limits. They are shared between associated companies, which we cover further down, and they are reduced for accounting periods shorter than 12 months.
How does marginal relief work?
Marginal relief reduces your Corporation Tax bill when profits fall between £50,000 and £250,000, so you do not jump straight from 19% to 25%. You first calculate the tax at the full 25% main rate, then subtract the marginal relief, which gives an effective rate that rises gradually across the band.
HMRC's formula uses a standard marginal relief fraction of 3/200. The relief is worked out as:
(Upper limit minus profits) × (3 / 200)
Here "profits" means your augmented profits, which is your taxable profit plus certain exempt distributions from other companies. For most owner-managed companies with no such income, augmented profits and taxable profits are the same figure.
A worked example
Say your company has taxable profits of £100,000 for the 2026/27 financial year, with no associated companies and a full 12-month period.
- Step 1. Tax at the main rate: £100,000 × 25% = £25,000.
- Step 2. Marginal relief: (£250,000 minus £100,000) × 3/200 = £150,000 × 0.015 = £2,250.
- Step 3. Corporation Tax due: £25,000 minus £2,250 = £22,750.
That is an effective rate of 22.75% on £100,000, sitting neatly between the 19% and 25% rates. The closer your profits are to £50,000, the closer the effective rate is to 19%; the closer to £250,000, the closer it is to 25%. For the full method, thresholds and edge cases, see our dedicated guide on how Corporation Tax marginal relief works.
What is the CT600 and how do I file it?
The CT600 is the form you use to file your Company Tax Return with HMRC. It reports your company's income, expenses and the Corporation Tax calculation for the accounting period. You submit it online, together with your statutory accounts and tax computations, usually in iXBRL format generated by your accounting software.
You must file even if your company made a loss or owes no tax. The return is also where you claim your reliefs and allowances, so a well-prepared CT600 is what stops you overpaying. The directors are legally responsible for the return being accurate and on time, even when an accountant prepares it.
For who must file, what to include, dormant companies and the step-by-step submission process, read our full CT600 filing guide.
What are the Corporation Tax deadlines?
There are two deadlines and they are not the same, which catches many first-time directors out. You file the CT600 within 12 months of your accounting period ending. You pay any Corporation Tax due earlier, nine months and one day after the period ends. So you pay the tax roughly three months before the return explaining it is formally due.
| Obligation | Deadline | Example (year-end 31 March 2027) |
|---|---|---|
| Pay Corporation Tax | 9 months and 1 day after year-end | 1 January 2028 |
| File the CT600 | 12 months after year-end | 31 March 2028 |
Companies with taxable profits over £1.5 million generally pay in quarterly instalments instead. Miss the filing deadline and HMRC charges an automatic £100 penalty (rising to £200 after three months, then 10% of the unpaid tax). Miss the payment deadline and HMRC charges interest from the due date. For the timing, payment methods and what to do if you cannot pay, see how and when to pay Corporation Tax.
How do associated companies affect the limits?
The £50,000 and £250,000 limits are divided by the number of associated companies plus one. If your company has associated companies, the bands shrink, so you reach the 25% main rate at a much lower level of profit. This stops a single business splitting its profits across several companies to keep each below the small profits threshold.
Two companies are associated if one controls the other, or both are under the control of the same person or group. Control is usually about holding more than 50% of the shares or voting rights.
A quick illustration
Suppose you control two associated companies. The limits are divided by two, so for each company the small profits limit falls to £25,000 and the upper limit to £125,000. A company that would have paid 19% on £40,000 of profit standing alone now sits in the marginal relief band, because its lower limit is only £25,000.
Dormant companies and certain passive holding companies are usually ignored when counting associates, but the rules are detailed. If you run more than one company, it is worth checking your structure with an accountant, because the associated company count can quietly push you into a higher effective rate.
What reliefs can reduce my Corporation Tax?
Several reliefs reduce your taxable profit before the rate is applied, and claiming them properly is the single biggest lever on your bill. The main ones for trading companies are capital allowances, R&D relief and loss relief.
| Relief | What it does | Key 2026/27 figure |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% deduction for qualifying plant and machinery in the year of purchase | £1,000,000 a year |
| Full expensing | 100% first-year deduction for new main-rate plant and machinery, no annual cap | Companies only |
| R&D relief (merged scheme) | Extra deduction or credit for qualifying research and development | 20% expenditure credit |
| Loss relief | Set trading losses against other profits, prior years or future years | Carry forward indefinitely |
Capital allowances. When you buy equipment, machinery, vehicles or other qualifying assets, you cannot deduct the cost as a normal expense, but you can claim capital allowances. The Annual Investment Allowance gives a 100% deduction on up to £1,000,000 of qualifying spend each year. Our guide explains what a capital allowance is, with examples.
R&D relief. If your company works on a genuine advance in science or technology, the merged R&D scheme gives an above-the-line expenditure credit on qualifying costs. The detail, eligibility and rates are in our guide to the merged R&D scheme.
Loss relief. A trading loss is not wasted. You can carry it back against the previous year, set it against other income in the same period, or carry it forward to reduce future profits.
Allowable expenses. The simplest relief of all is claiming every legitimate business cost. Anything incurred wholly and exclusively for the business reduces your taxable profit. Our limited company allowable expenses guide sets out what you can and cannot claim.
How can I reduce Corporation Tax legally?
You reduce Corporation Tax by lowering your taxable profit through legitimate means: claiming every allowable expense, using capital allowances on equipment, paying a sensible director's salary, making employer pension contributions, and claiming reliefs such as R&D. None of this is avoidance; it is using the allowances Parliament built into the system.
The practical levers most owner-managed companies use are:
- Claiming all allowable business expenses, including the ones people forget such as use of home, mileage and professional subscriptions.
- Timing capital purchases to use the Annual Investment Allowance in the right period.
- Paying a director's salary and making employer pension contributions, both of which are deductible.
- Taking remaining profit as dividends, which are not deductible for the company but are taxed more lightly in your own hands.
- Claiming R&D relief if you carry out qualifying development work.
For a fuller walkthrough of each lever, read how to reduce Corporation Tax legally. If you would rather hand the whole calculation to someone, our Corporation Tax services cover preparation, filing and planning end to end.
Want a hand with your Corporation Tax?
Getting the rate right, claiming every relief and hitting both deadlines is exactly what we do. Book a free 20-minute call with a Zmartly accountant and we will walk through your company's position. Get in touch with Zmartly.
FAQs
What is the Corporation Tax rate in the UK for 2026/27?
For the financial year starting 1 April 2026, the small profits rate is 19% on taxable profits up to £50,000 and the main rate is 25% on profits over £250,000. Companies with profits between £50,000 and £250,000 pay the main rate but claim marginal relief, giving an effective rate between 19% and 25%.
How is marginal relief calculated?
You calculate tax at the 25% main rate, then subtract marginal relief worked out as (upper limit minus augmented profits) × 3/200. For example, on profits of £100,000 the relief is (£250,000 minus £100,000) × 3/200 = £2,250, reducing the £25,000 main-rate figure to £22,750, an effective rate of 22.75%.
When do I have to pay Corporation Tax?
You must pay Corporation Tax nine months and one day after the end of your accounting period. The CT600 return is filed later, within 12 months of the period end, so payment is due roughly three months before the filing deadline. Companies with profits over £1.5 million pay in quarterly instalments instead.
What are associated companies and why do they matter?
Associated companies are companies under common control. The £50,000 and £250,000 Corporation Tax limits are divided by the number of associated companies plus one, so the more associates you have, the lower the level of profit at which the 25% main rate and marginal relief begin. Dormant companies are usually ignored.
How much is the Annual Investment Allowance?
The Annual Investment Allowance gives a 100% deduction on up to £1,000,000 of qualifying plant and machinery spend each year. It means you can deduct the full cost of most equipment in the year you buy it, rather than spreading the relief over several years.
Do I have to file a Corporation Tax return if my company made a loss?
Yes. You must file the CT600 even if your company made a loss or owes no tax. Reporting a loss lets you carry it back, set it against other income, or carry it forward to reduce tax in profitable years. Not filing because you made a loss still triggers automatic penalties.
