How UK corporation tax works in 2025/26
Corporation tax is charged on the taxable profits of UK companies and unincorporated associations. From 1 April 2023, the UK has operated a two-rate system with marginal relief for profits in between — ending the previous decade of a flat 19% rate for everyone.
| Band | Profit range | Rate | Effective rate |
|---|---|---|---|
| Small profits rate | £0 – £50,000 | 19% | 19% |
| Marginal rate band | £50,001 – £250,000 | 25% less marginal relief | 26.5% |
| Main rate | £250,001+ | 25% | 25% |
The 26.5% marginal rate exists because HMRC taper from the 19% rate up to 25% is front-loaded — you effectively pay a higher rate on each additional pound in the £50k–£250k band so that by the time you reach £250k, the total rate averages out at 25%.
Marginal relief, step by step
HMRC calculates your corporation tax in two steps when profits are between £50,000 and £250,000:
- Gross tax: profit × 25%.
- Marginal relief: (upper limit − profit) × 3/200. With a £250,000 upper limit, the fraction is 1.5% of the unused band.
- Net tax: gross tax minus marginal relief.
A company with £75,000 of profit: gross tax = £18,750 (£75,000 × 25%); marginal relief = £2,625 ((£250,000 − £75,000) × 1.5%); final corporation tax = £16,125. Effective rate: 21.5%.— GoForma technical team, 2025/26 tax year modelling
Associated companies share the bands
If your company is "associated" with other UK companies — typically by common ownership of at least 50% — the £50,000 and £250,000 thresholds are divided between them. Two associated companies each get £25,000 small-profits band; three each get £16,667, and so on. The rules apply regardless of where the other companies are incorporated as long as they meet the control test.
Companies are associated if one controls the other, or both are controlled by the same person or connected persons. Dormant companies don't count. Full definitions are in HMRC's Corporation Tax Manual CTM03820.
Short or long accounting periods
Most companies have a 12-month accounting period. If yours is shorter (e.g. nine months after a change of year-end), the £50,000 and £250,000 thresholds are pro-rated by the same factor. A 9-month period gives thresholds of £37,500 and £187,500.
Accounting periods over 12 months are split for corporation tax: one 12-month period and one shorter period, each taxed separately. Companies House doesn't allow periods longer than 18 months.
When and how to pay corporation tax
Corporation tax is due nine months and one day after the end of your accounting period. For a company with a 31 March 2026 year-end, tax is payable by 1 January 2027. Your corporation tax return (CT600) is due 12 months after the year-end, so returns often file later than payment.
Larger companies — those with profits over £1.5 million (divided by associated companies) — pay corporation tax quarterly in advance rather than all at once. Very large companies (profits over £20 million) pay even earlier instalments.
Legitimate ways to reduce your corporation tax bill
- Maximise allowable expenses — software, training, business travel, professional fees, trivial benefits (up to £50 per occasion per employee).
- Pension contributions — employer contributions to a director's pension are deductible and have no NI charge, subject to the £60,000 annual allowance.
- Annual Investment Allowance — 100% first-year relief on up to £1 million of qualifying plant and machinery.
- R&D tax credits — from April 2024 the merged scheme gives a 20% above-the-line credit on qualifying research and development spend.
- Loss relief — trading losses can be carried back one year or forward indefinitely against future profits.