If you run a UK limited company, Corporation Tax isn’t optional, it’s one of the core responsibilities that comes with being incorporated.
In simple terms, Corporation Tax is charged on your company’s taxable profits for the accounting period. Most small and medium limited companies will pay a rate somewhere between 19% and 25%, depending on profit levels and whether marginal relief applies.
If you’d like us to estimate your bill (and show you legal ways to reduce it), call Accounting People Ltd on 0333 023 1300.
What Is Corporation Tax?
Corporation Tax is paid by the company (not you personally). It applies to the profit your company makes after deducting allowable business costs.
Profits can come from:
- normal trading (sales/services)
- investments
- selling business assets (chargeable gains may apply)
Once income is recorded and allowable expenses are deducted, the remaining figure is your taxable profit, and that’s what Corporation Tax is charged on.
Who Has to Pay Corporation Tax in the UK?
Generally, Corporation Tax applies to limited companies operating in the UK (including some non-UK companies with UK activity). Sole traders and partnerships don’t pay Corporation Tax, they pay tax through Self-Assessment instead.
If you’re unsure what applies to your setup, it’s worth getting advice early, especially if you’re trading through more than one company.
Do Limited Companies Pay Corporation Tax Even If They Leave the Money in the Business?
Yes. Companies pay Corporation Tax based on the profit recorded for the accounting period, not on whether you withdraw the cash.
So even if you leave profits in the business bank account to reinvest next year, HMRC still taxes the profit earned in the current year.
Also worth knowing: unlike individuals, companies do not get a “personal allowance”, tax applies from the first £1 of taxable profit.
Corporation Tax Rates for Limited Companies (2025/26 and 2026/27)
Here are the current headline rates and thresholds:
- Profits up to £50,000 → 19% (Small Profits Rate)
- Profits £50,001 to £250,000 → Marginal Rate applies (effective rate slides between 19% and 25%)
- Profits over £250,000 → 25% (Main Rate)
Close Investment Holding Companies (important exception)
If HMRC treats your company as a close investment-holding company (basically a company that just holds investments rather than trading), you generally cannot use the small profits rate or marginal relief, you’ll be charged at the main rate.
Example Corporation Tax Calculations
Example A: Small company (£30,000 profit)
Step 1: Taxable profit
£30,000
Step 2: Corporation Tax rate
19%
Step 3: Calculation
£30,000 × 19% = £5,700
Corporation Tax bill: £5,700
Example B: Mid-profit company (£150,000 profit)
Step 1: Calculate tax at the main rate
£150,000 × 25% = £37,500
Step 2: Calculate Marginal Relief
Using the simplified formula for a straightforward example:
(£250,000 − £150,000) × 3/200
= £100,000 × 3/200
= £1,500
Step 3: Deduct the relief
£37,500 − £1,500 = £36,000
Corporation Tax bill: £36,000
Effective tax rate: 24%
Example C: Larger company (£500,000 profit)
Step 1: Taxable profit
£500,000
Step 2: Corporation Tax rate
25%
Step 3: Calculation
£500,000 × 25% = £125,000
Corporation Tax bill: £125,000
Associated Companies: The Rule That Catches People Out
If you control more than one company, HMRC may treat them as associated companies. When that happens, the £50,000 and £250,000 thresholds are split across the number of associated companies.
Example: if you have 2 associated companies, each company effectively has:
- lower threshold: £25,000
- upper threshold: £125,000
That can push you into higher effective rates sooner, even if each company’s profits look “small” on paper.
How Corporation Tax Is Calculated (Step-by-Step)
The logic is straightforward (the admin is what trips people up):
- Calculate total income/turnover for the accounting period
- Deduct allowable business expenses
- Apply the correct Corporation Tax rate (19% / marginal relief / 25%)
- File your Company Tax Return (CT600) and pay tax by the deadline
Marginal Relief – a simple example (profit £100,000)
Marginal relief uses a set fraction (currently 3/200) to smooth the jump between 19% and 25%.
Key Deadlines You Must Know
Missing deadlines can trigger automatic penalties and interest, so these are non-negotiable:
- Pay Corporation Tax: usually 9 months and 1 day after your accounting period ends
- File CT600: 12 months after your accounting period ends
- You must file a return even if you made a loss or have no tax to pay
Late filing penalties (CT600)
- £100 if late
- another £100 if more than 3 months late
- then further penalties if 6 and 12 months late (including % of unpaid tax)
How to Reduce Your Corporation Tax Bill (Legally)
You should never pay more than you legally owe. Common ways to reduce taxable profit include:
1) Pension contributions (director pensions)
Employer pension contributions made by the company are often allowable and can reduce taxable profit (depending on circumstances).
2) Capital allowances
If you buy equipment, tools, furniture, IT, etc., you may be able to claim capital allowances.
New: 40% First-Year Allowance from 1 January 2026
A new 40% FYA is available for qualifying main-rate plant and machinery expenditure from 1 January 2026, designed to help where other FYAs aren’t available (such as certain leasing situations).
3) Home office / work-from-home costs
If you run the company from home, you may be able to claim appropriate business-use costs.
Top tip: keep records and receipts digitally, it makes claiming everything you’re entitled to far easier.
How to Register a Limited Company and Corporation Tax (2026)
1) Incorporate with Companies House
From 1 February 2026, incorporation fees are:
- £100 online
- £124 paper
2) Identity verification (directors / PSCs)
Identity verification became a legal requirement from 18 November 2025, using GOV.UK One Login or via an Authorised Corporate Service Provider (such as an accountant).
3) Corporation Tax registration / admin
HMRC will issue a Unique Taxpayer Reference (UTR) and you’ll then manage Corporation Tax via HMRC services (you’ll also need to know your accounting period dates).
Do You Pay Corporation Tax If the Company Makes a Loss?
If your company makes a loss, you won’t pay Corporation Tax for that period, but you still need to file the Company Tax Return. Losses can often be carried forward (and sometimes carried back) depending on the type of loss and circumstances.
Can You Pay Corporation Tax in Instalments?
Most small companies pay once per year.
If profits are high enough (typically over £1.5 million), HMRC normally requires Quarterly Instalment Payments (QIPs).
Best Way to Stay on Top of Corporation Tax
A practical system that works for many companies: move a set percentage into a separate “tax pot” monthly so the 9-month payment deadline never becomes a panic moment. (The exact % depends on your profit profile and whether marginal relief applies.
Do You Need an Accountant for Corporation Tax?
It’s not legally required, but it’s strongly recommended if you want to:
- stay compliant
- avoid penalties
- claim the right reliefs and capital allowances
- plan salary/dividends efficiently
Get Help with Corporation Tax, Accounting People Ltd
If you want Corporation Tax to feel predictable (instead of stressful), we can help you:
- calculate your bill accurately
- confirm whether marginal relief or associated company rules apply
- claim allowable expenses and relevant capital allowances
- file CT600 and keep you compliant with deadlines
Call Accounting People Ltd on 0333 023 1300 to book a call.
