How UK Corporation Tax works (small companies)

If you run a limited company in the UK, Corporation Tax is the tax you pay on your profits. It's simpler than personal tax in some ways — one rate band structure, one annual return — but the 2023 reforms reintroduced a tapered "marginal relief" zone that trips up a lot of small business owners. Here's how it actually works.

What you're taxed on

Corporation Tax is charged on your company's taxable profit — broadly, your income minus allowable business expenses and capital allowances. It's not charged on your turnover, and it's separate from any income tax or dividend tax you pay personally when you take money out of the company. Get the profit figure right first; the tax is calculated on that.

The rates (2025/26)

There are two headline rates and a zone in between:

Small profits rate — 19%: if your taxable profit is £50,000 or less, you pay 19%.

Main rate — 25%: if your taxable profit is £250,000 or more, the whole profit is taxed at 25%.

Marginal relief — between £50,000 and £250,000: profits in this band are taxed in a tapered way, so your effective rate slides gradually from 19% up to 25% as profits rise. The quirk: the slice of profit between £50k and £250k effectively carries a marginal rate of 26.5% — higher than the headline 25% — because that's how the taper claws back the benefit of the lower rate.

Rates and thresholds can change at each Budget — always confirm the current figures for your accounting period.

Worked example

Say your company makes £80,000 taxable profit. You're in the marginal-relief band. The first £50,000 effectively sits at the lower rate, and the £30,000 above it is taxed at the steeper marginal rate — so your bill lands between a flat 19% (£15,200) and a flat 25% (£20,000), at roughly £17,150, an effective rate of about 21.4%. The calculator does this taper for you so you don't have to apply the marginal-relief formula by hand.

The associated companies trap

If you control more than one company (or have associated companies), the £50,000 and £250,000 thresholds are divided between them. Two associated companies each get a £25,000 small-profits threshold, not £50,000 each. This catches people with a holding company or multiple ventures, pushing them into marginal relief sooner than expected.

When you pay

For most small companies, Corporation Tax is due 9 months and 1 day after the end of your accounting period — and the return (CT600) is due 12 months after the period end. Note the payment deadline comes before the filing deadline, so don't wait until you file to think about the cash. Very large companies pay in quarterly instalments, but that won't apply to most small firms.

Common mistakes

Forgetting it's on profit, not turnover. Allowable expenses and capital allowances reduce the taxable figure — make sure they're all captured before the tax is calculated.

Spending the tax money. The cash sitting in the company isn't all yours — set aside the Corporation Tax as you go, so the bill 9 months after year-end isn't a shock.

Ignoring marginal relief. If your profit is between £50k and £250k, a flat 25% overstates your bill and a flat 19% understates it. Use the taper.

Overlooking associated companies. Multiple companies share the thresholds — factor that in before assuming you're under £50k.

Rates confirmed against GOV.UK — Corporation Tax rates (rates apply from 1 April 2023). Always check the current figures for your accounting period.