Corporation Tax is the tax a limited company pays on its profits. Since April 2023, the UK has had a two-rate system, a lower rate for companies with small profits and a higher rate for those above a certain threshold. Many small business owners are confused about which rate applies to them and how Marginal Relief works in between.
This guide explains the current rates, how to calculate your bill, and the most effective ways to reduce your Corporation Tax legally.
Corporation Tax Rates in 2026/27
| Company profits | Rate |
|---|---|
| Up to £50,000 (small profits rate) | 19% |
| £50,001 to £250,000 (Marginal Relief zone) | Between 19% and 25% |
| Over £250,000 (main rate) | 25% |
The thresholds are for the company's taxable profits. If your company has an accounting period shorter than 12 months, the thresholds are proportionally reduced.
Associated companies: If you control more than one company, the thresholds are divided between them. Two associated companies each have thresholds of £25,000 and £125,000 instead of £50,000 and £250,000. This catches many directors who own multiple businesses.
How Marginal Relief Works
If your company's profits fall between £50,000 and £250,000, Marginal Relief applies. The effective Corporation Tax rate gradually increases from 19% to 25% across this range.
The Marginal Relief fraction is 3/200. The relief is calculated as:
Marginal Relief = (Upper limit minus taxable profits) × 3/200
For a company with £100,000 profit:
- Tax at main rate (25%): £25,000
- Marginal Relief: (£250,000 minus £100,000) × 3/200 = £2,250
- CT payable: £25,000 minus £2,250 = £22,750 (effective rate: 22.75%)
HMRC's Corporation Tax calculator handles this automatically on your CT600 return, but understanding where you fall helps with planning.
When Is Corporation Tax Paid?
For most small companies (not large companies paying instalments), Corporation Tax is due 9 months and 1 day after the end of your accounting period.
So if your company year-end is 31 March 2026, your Corporation Tax for that year is due by 1 January 2027.
The CT600 (Corporation Tax return) must be filed within 12 months of the accounting period end. The payment due date is earlier than the filing deadline, a common trap for new directors.
What Counts as Taxable Profit?
Taxable profit is not the same as accounting profit. It starts with your accounting profit and then various adjustments are made:
Deductible expenses (reduce taxable profit): Salary costs including employer NI, rent and premises costs, software and subscriptions, marketing, professional fees, and genuine business costs incurred wholly for the business.
Employer pension contributions: Fully deductible in the year paid. A £15,000 employer pension contribution reduces taxable profit by £15,000, saving £2,850 at the 19% rate or £3,750 at 25%.
Capital allowances: Equipment, vehicles, and technology are not deducted as expenses in the profit and loss account, they are depreciated in the accounts. For tax, they are replaced by capital allowances. The Annual Investment Allowance allows 100% deduction of qualifying spend in the year of purchase, up to £1 million per year.
Non-deductible items: Client entertainment, personal expenditure, fines and penalties, and the depreciation charged in the accounts (replaced by capital allowances).
How to Reduce Your Corporation Tax Bill Legally
Employer pension contributions: The most tax-efficient use of company profits. Every pound contributed reduces CT by 19p to 25p and is not subject to income tax or NI when contributed. The annual allowance is £60,000 (individual limit including any personal contributions).
Annual Investment Allowance: Buying equipment, computers, or software in the current accounting period rather than just after the year end brings the full AIA deduction forward by a year.
R&D tax credits: If your company carries out qualifying research and development, developing new products, processes, or software, you may qualify for an enhanced deduction or a cash credit. The rules changed from April 2024 with a merged scheme for most companies.
Director salary optimisation: Paying a salary to the director is deductible for the company. Optimising the salary level (typically £9,100 for most single-director companies in 2026/27) maximises the CT deduction while minimising employer NI.
Timing of income and expenses: If your profits are approaching the £50,000 small profits threshold, deferring income or accelerating deductible expenses into the current period keeps you in the lower rate band.
Client C ran a web development limited company in Stanmore with profits of £85,000 before any extraction. At 25% CT on profits above £50,000 with Marginal Relief, his initial CT bill was approximately £19,000. We made three changes: an employer pension contribution of £20,000 (saving £5,000 in CT and costing the director nothing in personal tax), brought forward the purchase of a new laptop and development server to before the year end (£3,200 AIA, saving £800 CT), and correctly structured his salary at £9,100 (already in place). Total CT saved through legitimate planning: £5,800. His effective tax rate dropped from 22.4% to 16.1% on the same revenue.
Frequently Asked Questions
Need help with your tax position?
Fixed fees, expert advice, no jargon. Serving Stanmore, Harrow, Wembley, Edgware and all of North West London.
Or email info@yourtaxhelp.co.uk | yourtaxhelp.co.uk