Key points
- Corporation Tax is charged on taxable profit, not on the profit in your accounts. Some costs are added back, and capital allowances are deducted.
- The rate is 19% on profits up to £50,000 and 25% from £250,000. In between, marginal relief gives an effective rate of 26.5% on the band between. The rates are the same from 1 April 2023 and are already set for the year from 1 April 2027.
- The band is decided by augmented profits: dividends received from companies outside your group can reduce marginal relief.
- The limits are divided between associated companies and reduced for periods shorter than 12 months.
- Tax is paid 9 months and 1 day after the year end, or in quarterly instalments for large companies. The return is filed within 12 months. Late filing costs at least £200 from April 2026.
What is Corporation Tax and who has to pay it?
Corporation Tax is the tax a company pays on its taxable profits: trading profits, investment income and chargeable gains on selling assets.
- A company resident in the UK pays it on its worldwide profits, with relief for foreign tax where a double tax treaty or UK rules allow it.
- A company resident abroad pays UK Corporation Tax on profits of a UK permanent establishment (such as a branch), on income from UK property and on gains on UK land and property.
- A dormant company that is not doing business has nothing to pay.
Corporation Tax works on self-assessment. The company works out its own liability, reports it on the CT600 return and pays it on time. HMRC does not send a bill.
You must register for Corporation Tax within 3 months of starting to do business. That includes buying, selling, advertising, renting premises or employing someone, not just the date the company was incorporated.
Step 1: from accounting profit to taxable profit
Your accounts show the profit under accounting rules. Tax law then adjusts it. The most common adjustments:
| Adjustment | Why |
|---|---|
| Add back depreciation | Depreciation of equipment, vehicles and buildings is not deductible. Capital allowances replace it. Intangible assets, such as software or intellectual property, have separate rules. |
| Add back client entertainment | Entertaining clients and other business contacts is not deductible, even when it is for business. Staff entertaining, such as a staff party, is deductible. |
| Add back fines and penalties | Fines imposed on the company, including HMRC penalties. |
| Add back personal costs | Anything not wholly and exclusively for the business. See how HMRC sees your expenses. |
| Deduct capital allowances | For equipment, vans and machinery. See the 2026 rates below. |
| Deduct losses brought forward | Trading losses from earlier years reduce this year's profit. |
Capital allowances in 2026. Companies can claim the Annual Investment Allowance of 100% on up to £1 million a year of plant and machinery, excluding cars. They can also claim full expensing (100%) on new, unused main-pool plant and a 50% first-year allowance on new special-rate assets. A 40% first-year allowance applies to new main-rate plant and machinery bought from 1 January 2026, including assets bought to lease (but not cars, second-hand assets or assets leased overseas). From 1 April 2026 the writing-down allowance on the main pool falls from 18% to 14% a year. A period that spans that date uses a time-apportioned hybrid rate. The special rate pool stays at 6%.
Step 2: which rate applies
Small profits rate: 19%
- Profits up to £50,000.
- Not available to close investment-holding companies, which always pay 25%.
Main rate: 25%
- Profits of £250,000 or more.
- Between £50,000 and £250,000: 25% minus marginal relief.
These rates have applied since the financial year starting 1 April 2023. Finance Act 2026 has set the same rates and limits for the financial year starting 1 April 2027. Corporation Tax years run from 1 April to 31 March, not from 6 April like Income Tax.
The limits are tested on augmented profits, not just taxable profit. For most small companies the two are the same. See augmented profits below.
How marginal relief is calculated (3/200 and 26.5%)
If there are no dividends from other companies, marginal relief is 3/200 × (£250,000 − taxable profit). You work out tax at 25%, then take the relief off.
Taxable profit £60,000. Tax at 25% is £15,000. Marginal relief is 3/200 × (£250,000 − £60,000) = £2,850. Corporation Tax: £12,150, an average rate of 20.25%.
Where 3/200 and 26.5% come from. Tax at 25% on £250,000 is £62,500, and tax at 19% on £50,000 is £9,500. The extra £53,000 of tax falls on the £200,000 between the two limits, which is a marginal rate of 26.5%. The standard marginal relief fraction is the difference between the marginal rate and the main rate: 26.5% − 25% = 1.5%, or 3/200. Each extra pound of profit inside the band costs 26.5p in tax, which is why tax planning matters most in this band.
Taxable profit of £200,000, with no associated companies and no dividends received. Method 1: tax at 25% is £50,000. Marginal relief is 3/200 × (£250,000 − £200,000) = £750. Corporation Tax is £49,250. Method 2: 19% on the first £50,000 is £9,500. 26.5% on the remaining £150,000 is £39,750. The total is again £49,250, an average rate of 24.6%.
To check your figures, use HMRC's free Marginal Relief calculator. It handles associated companies, short periods and periods that span two financial years, for accounting periods starting on or after 1 April 2023.
Augmented profits and exempt distributions
Dividends received can cost you relief. The rate band is decided by augmented profits. These are taxable total profits plus exempt distributions received from companies outside your group: mainly dividends, but also distributions of assets and certain bonus issues. Dividends from a 51% subsidiary, from your parent company or from a consortium-owned quasi-subsidiary are left out.
The dividends themselves are not taxed, but they can push the company into a higher band and reduce marginal relief. The full formula is:
3/200 × (£250,000 − augmented profits) × (taxable total profits ÷ augmented profits)
A company with taxable profits of £150,000 receives £40,000 of dividends from unconnected companies, so augmented profits are £190,000. Tax at 25% on £150,000 is £37,500. Marginal relief is 3/200 × (£250,000 − £190,000) × (£150,000 ÷ £190,000) = £710.53. Corporation Tax is £36,789.47.
Associated companies
Two companies are associated if one controls the other, or if the same person or group of people controls both. Where the companies are based for tax does not matter.
- A company counts even if it was associated for only part of the accounting period.
- A company that carried on no trade or business in the period is ignored, and so is a passive holding company that only receives and pays on dividends.
- Shares held by relatives or business partners are added to yours only where the companies have substantial commercial interdependence: financial, economic or organisational links.
The £50,000 and £250,000 limits are divided by the number of associated companies plus one. A company with one associated company has limits of £25,000 and £125,000. A company with two associated companies has limits of £16,667 and £83,333.
A company with one associated company has taxable profit of £80,000. Tax at 25% is £20,000. Marginal relief is 3/200 × (£125,000 − £80,000) = £675, so Corporation Tax is £19,325. If the other company makes £180,000, it is above its £125,000 limit and pays 25%, which is £45,000.
On the CT600, each company enters the number of other associated companies in box 326 (in this example, 1). It ticks box 329 to claim the small profits rate or marginal relief.
Short periods and periods spanning two financial years
A Corporation Tax accounting period is never longer than 12 months. If it is shorter, the £50,000 and £250,000 limits are reduced in proportion. For example, a 6-month period has limits of about £25,000 and £125,000.
Corporation Tax rates are set for financial years running from 1 April to 31 March. If your accounting period falls partly in one financial year and partly in the next, the profit is split between them by the number of days in each, and the limits are split in the same proportion. Because the rates, limits and fraction have been the same since 1 April 2023 and are already set for the year from 1 April 2027, the split currently gives the same total for a 12-month period as a single calculation. It matters when rates change, when the period is shorter than 12 months, or when the number of associated companies is different in the two years. The CT600 has separate boxes (327 and 328) for the number of associated companies in each financial year.
When to pay and file
- Register for Corporation Tax within 3 months of starting to do business.
- Pay 9 months and 1 day after the end of the accounting period.
- File the CT600 return with accounts within 12 months of the end of the accounting period.
- Large companies pay in quarterly instalments instead (see below).
If your company's accounting period ends on 31 March 2026, the tax is due by 1 January 2027 and the CT600 must be filed by 31 March 2027.
If a payment deadline falls on a weekend or bank holiday, the money must reach HMRC by the last working day before it, unless you pay by Faster Payments. See also year-end accounts.
Quarterly instalment payments for large companies
A company is large if its profits for the period are more than £1.5 million (pro rata for a shorter period). For this test, profits include dividends received from companies outside its group. The £1.5 million limit is divided by the number of associated companies plus one.
Large companies pay Corporation Tax in four instalments instead of one payment. For a 12-month period, the first is due 6 months and 13 days after the period starts, and the others follow at 3-month intervals.
For a period from 1 January to 31 December 2026, the instalments are due on 14 July 2026, 14 October 2026, 14 January 2027 and 14 April 2027.
- A company does not pay instalments in the first period it becomes large if its profits are no more than £10 million.
- No instalments are due if the tax for the period is under £10,000.
- Companies with profits over £20 million are very large and pay earlier: in the 3rd, 6th, 9th and 12th months of the period.
HMRC charges interest on late or short instalments.
Penalties for late filing and interest
| How late | Penalty (filing date on or after 1 April 2026) |
|---|---|
| Up to 3 months | £200 |
| More than 3 months | £400 |
| Late for the third time in a row | £1,000, or £2,000 if more than 3 months late |
| Still not filed 18 months after the end of the period | Plus 10% of the unpaid tax |
| Still not filed 2 years after the end of the period | 20% of the unpaid tax (instead of 10%) |
Before April 2026 the fixed penalties were £100 and £200 (£500 and £1,000 for repeated failures). Interest on late payment runs from the due date at the Bank of England base rate plus 4%.
Legal ways to reduce Corporation Tax
- Time your equipment purchasesBuying equipment before the year end brings the allowance into this year.
- Pay a salary to directorsSalary and employer National Insurance are deductible. See salary or dividends.
- Employer pension contributionsDeductible for the company, with no National Insurance. For advice on choosing a pension, speak to an FCA-authorised financial adviser.
- Keep records of every allowable costMissed costs mean tax paid that was never due.
Corporation Tax calculator
What to prepare
0 of 6 ready
One piece of advice
Corporation Tax is decided long before the return is filed. Plan purchases, salary and pension contributions during the year, while there is still time to change the result.
Test yourself
1. Your accounts include £4,000 of depreciation on equipment. What happens for tax?
Depreciation of equipment is not deductible; capital allowances replace it.
2. Taxable profit is £40,000 and the company has no associated companies or dividends received. What is the Corporation Tax?
19% of £40,000 is £7,600.
3. You control two trading companies. What is the small profits limit for each?
Each has one associated company, so the £50,000 limit is divided by 2.
4. Your company receives dividends from an unconnected company. What can happen?
The dividends are not taxed, but they count in augmented profits and can reduce marginal relief.
5. When is Corporation Tax for the year ending 31 December 2026 due, for a company that is not large?
9 months and 1 day after the year end.
Law and sources
- GOV.UK: rates and allowances for Corporation TaxRates, limits and the marginal relief fraction
- GOV.UK: marginal relief for Corporation TaxHow marginal relief is calculated
- HMRC: Marginal Relief calculatorChecks marginal relief for periods from 1 April 2023
- HMRC Company Taxation Manual CTM03915 and CTM03925Augmented profits and the marginal relief formula
- HMRC Company Taxation Manual CTM03940Associated companies
- Corporation Tax Act 2010, Part 3A (sections 18A to 18N)Small profits rate, marginal relief and associated companies
- Finance Act 2026Rates for the financial year 2027 and capital allowance changes
- Corporation Tax Act 2009, section 5Profits charged on UK and non-UK resident companies
- GOV.UK: capital allowances, new first-year allowance and main rate of writing-down allowances40% first-year allowance and 14% main rate
- GOV.UK: permanent full expensingFull expensing for companies
- Capital Allowances Act 2001, section 51AAnnual Investment Allowance
- Corporation Tax Act 2009, section 1298Business entertainment not deductible
- GOV.UK: set up your company for Corporation TaxWhen to register
- GOV.UK: Company Tax ReturnsFiling and payment deadlines
- GOV.UK: paying Corporation Tax in instalmentsLarge and very large companies
- GOV.UK: increases to Corporation Tax late filing penaltiesPenalties from 1 April 2026
- GOV.UK: late payment interest rates from 6 April 2025Base rate plus 4%
This guide explains the rules in general terms as at 9 October 2026. It is not advice for your situation. Rules and rates change.
