Corporation tax is the tax that UK limited companies pay on their taxable profits. It is charged on profits from trading activities, investments, and the sale of assets (chargeable gains).
Corporation tax is administered by HMRC and is separate from the income tax that directors and employees pay on their earnings. If you’re a sole trader or in a general partnership, you pay income tax on your business profits through Self Assessment, not corporation tax. Corporation tax applies specifically to incorporated companies.
Who Pays Corporation Tax?
The following must pay UK corporation tax:
- UK limited companies (the most common form for small businesses)
- Foreign companies with a UK office or branch
- Clubs, co-operatives, and membership organisations
Sole traders and ordinary partnerships do not pay corporation tax, they pay income tax and National Insurance via Self Assessment instead.
What Are the UK Corporation Tax Rates in 2025/2026?
The UK corporation tax system was restructured from April 2023. As of the 2025/2026 tax year:
| Profit Level | Rate | Applies To |
| Up to £50,000 | 19% (Small Profits Rate) | Most micro businesses and small limited companies |
| £50,001 – £250,000 | Marginal relief applies | Effective rate between 19% and 25% |
| Over £250,000 | 25% (Main Rate) | Larger businesses |
| Important: The £50,000 and £250,000 thresholds are divided by the number of ‘associated companies’ (companies under common control). If you own two companies, the threshold halves for each. |
How is Corporation Tax Calculated?
Corporation tax is charged on your ‘taxable profits’, which are not the same as your accounting profits. Your accountant will adjust your accounts profit to arrive at taxable profit by:
- Adding back any expenses that HMRC doesn’t allow (e.g. client entertainment, accounting depreciation)
- Deducting any reliefs or allowances (e.g. capital allowances, R&D tax credits)
- Adjusting for any losses carried forward from previous years
| 📊 Example A small limited company has accounting profits of £62,000. Adjustments: + Add back depreciation: £4,500 (not deductible for tax) + Add back entertaining costs: £800 − Deduct capital allowances: −£4,500 Taxable profit: £62,800 Corporation tax at 25% = £15,700 (Less marginal relief if applicable, your accountant will calculate this) |
When is Corporation Tax Due?
For most small companies, you must:
- File your company tax return (CT600) with HMRC within 12 months of your accounting year end
- Pay the tax owed within 9 months and 1 day after your accounting year end
So if your year end is 31 March, you must pay any tax owed by 1 January (9 months later) and file the return by 31 March the following year. Large companies with profits over £1.5 million pay quarterly instalments, this rarely applies to small businesses.
Can You Reduce Your Corporation Tax Bill?
Legitimately, yes, there are several reliefs and allowances available:
- Annual Investment Allowance (AIA), deduct 100% of qualifying capital expenditure (equipment, machinery, IT) up to £1 million per year
- R&D Tax Credits, if you’re developing new products, processes, or software, you may be able to claim a significant tax relief
- Loss relief, if your company makes a loss, you can carry it back to reduce prior year tax or carry it forward against future profits
- Pension contributions, employer contributions are generally deductible, reducing taxable profit
Frequently Asked Questions
No. Sole traders pay income tax and Class 4 National Insurance on their profits through Self Assessment. Corporation tax only applies to limited companies and other incorporated entities.
If your company makes a trading loss in a given year, no corporation tax is due. You can carry the loss forward to offset against future profits, or in some cases carry it back to reclaim tax paid in the previous year.
Marginal Relief is a taper that reduces the effective corporation tax rate for companies with profits between £50,000 and £250,000. Rather than jumping straight from 19% to 25%, the effective rate gradually increases through this band. Your accountant will calculate the exact relief.
