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 limits are shared between associated companies and reduced for periods shorter than 12 months.
- Tax is paid 9 months and 1 day after the year end. The return is filed within 12 months.
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 is never deductible. Capital allowances replace it. |
| Add back client entertainment | Business entertainment is never deductible, even when it is for business. |
| Add back fines and penalties | Including HMRC penalties and parking fines. |
| 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. The Annual Investment Allowance gives 100% relief on up to £1 million a year. |
| Deduct losses brought forward | Trading losses from earlier years reduce this year's profit. |
Step 2: which rate applies
Small profits rate: 19%
- Taxable profit up to £50,000.
- Not available to close investment-holding companies.
Main rate: 25%
- Taxable profit of £250,000 or more.
- Between £50,000 and £250,000: 25% minus marginal relief.
Marginal relief is calculated as 3/200 × (£250,000 − profit). In practice, the profit between £50,000 and £250,000 is taxed at an effective 26.5%, which is why tax planning matters most in this band.
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%.
Step 3: associated companies and short periods
If you or your family control more than one company, they are usually associated. The £50,000 and £250,000 limits are then divided by the number of associated companies. With two companies, each has limits of £25,000 and £125,000.
If the accounting period is shorter than 12 months, the limits are reduced proportionally. A Corporation Tax period is never longer than 12 months.
Step 4: deadlines
- Register for Corporation Tax within 3 months of starting to trade.
- Pay 9 months and 1 day after the end of the accounting period.
- File the CT600 return with accounts within 12 months.
- Companies with profits over £1.5 million pay in quarterly instalments.
Late filing costs £200, then £400 after three months, from 1 April 2026. Interest runs on late payment. See year-end accounts.
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.
- Keep records of every allowable costMissed costs mean tax paid that was never due.
Corporation Tax calculator
What to prepare
0 of 5 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. What happens for tax?
Depreciation is never deductible; capital allowances replace it.
2. Taxable profit is £40,000 and the company has no associated companies. What is the Corporation Tax?
19% of £40,000 is £7,600.
3. You control two companies. What is the small profits limit for each?
The £50,000 limit is divided between associated companies.
4. When is Corporation Tax for the year ending 31 December 2026 due?
9 months and 1 day after the year end.
Law and sources
- GOV.UK: Corporation Tax rates and reliefsSmall profits rate, main rate and marginal relief
- GOV.UK: marginal relief for Corporation TaxHow marginal relief is calculated
- Corporation Tax Act 2010, Part 3Small profits rate and associated companies
- Capital Allowances Act 2001, section 51AAnnual Investment Allowance
- Corporation Tax Act 2009, section 1298Entertainment not deductible
- GOV.UK: Company Tax ReturnsFiling and payment deadlines
This guide explains the rules in general terms as at 5 October 2026. It is not advice for your situation. Rules and rates change.
