Corporation Tax Calculator 2025/26

How Corporation Tax Works

Corporation tax is the tax paid by UK limited companies on their taxable profits. Since April 2023, the UK operates a two-rate system: a 19% small profits rate for companies with profits of £50,000 or less, and a 25% main rate for companies with profits above £250,000. Companies with profits between these two thresholds pay the main rate but receive marginal relief, which reduces the effective rate to somewhere between 19% and 25%.

Taxable profits are calculated by taking the company's total income and subtracting allowable business expenses, capital allowances, and any other deductions. This includes trading profits, investment income, and chargeable gains. The calculation starts with the accounting profit figure from the company's financial statements, which is then adjusted for tax purposes — for example, depreciation is added back and capital allowances are deducted instead, and entertaining expenses are disallowed.

Every UK limited company must file a Company Tax Return (CT600) with HMRC, even if the company made a loss or had no tax to pay. The return must be filed within 12 months of the end of the accounting period, while the tax itself must be paid within nine months and one day of the accounting period end. Late filing results in automatic penalties starting at £100 and escalating for continued delay, while late payment incurs interest charges.

It is important to understand that corporation tax applies to profits, not revenue. A company with £1 million in revenue but £980,000 in allowable expenses would only pay corporation tax on the £20,000 profit. This distinction between revenue and profit is fundamental to understanding how the tax works and why tax planning focuses on maximising legitimate deductions.

Corporation Tax Rates for 2025/26

These thresholds apply to standalone companies with no associated companies. If your company has associated companies, the thresholds are divided equally. For example, a company with one associated company would have a lower limit of £25,000 and an upper limit of £125,000. The number of associated companies is the total count of other companies under common control, not including dormant companies.

The rates above apply to the financial year starting 1 April 2025 and ending 31 March 2026. If your accounting period straddles two financial years with different rates, the profits are apportioned on a time basis and each portion is taxed at the relevant year's rates. However, since the rates have remained the same since April 2023, this is not currently an issue for most companies.

How Marginal Relief Works

Marginal relief is the mechanism that provides a gradual transition between the 19% small profits rate and the 25% main rate. Without it, a company earning £50,001 would face a sudden jump from 19% to 25%, creating a cliff edge that would discourage growth. Marginal relief smooths this transition so that the effective rate increases gradually as profits rise through the band.

The full marginal relief formula is:

Marginal Relief = (U - P) x (N / P) x 3/200

Where U is the upper limit (£250,000), P is the company's taxable total profits, and N is the company's taxable trading profits. In most cases for trading companies where all profits are from trading, N equals P and the formula simplifies to:

Marginal Relief = (£250,000 - Profits) x 3/200

The corporation tax due is then calculated as:

Tax = (Profits x 25%) - Marginal Relief

The marginal relief fraction of 3/200 (equal to 1.5%) is specifically calibrated so that the effective tax rate transitions smoothly from exactly 19% at the £50,000 lower limit to exactly 25% at the £250,000 upper limit. This means the marginal rate — the rate on each additional pound of profit within the band — is actually 26.5%, which is higher than the main rate of 25%. Understanding this elevated marginal rate is important for tax planning decisions about the timing of income and expenses.

Marginal Relief Worked Example

Consider a company with taxable profits of £120,000 and no associated companies:

• Tax at main rate: £120,000 x 25% = £30,000
• Marginal relief: (£250,000 - £120,000) x 3/200 = £130,000 x 0.015 = £1,950
• Corporation tax due: £30,000 - £1,950 = £28,050
• Effective rate: £28,050 / £120,000 = 23.38%

Notice that the effective rate of 23.38% falls between the 19% small profits rate and the 25% main rate, exactly as intended. The company saves £1,950 compared to paying the flat 25% main rate.

Associated Companies

Associated companies are those under common control. Two companies are associated if one controls the other, or if both are controlled by the same person or group of persons. Control means owning more than 50% of the ordinary share capital, or being entitled to more than 50% of the distributable income or assets on a winding up.

When a company has associated companies, the upper and lower limits for marginal relief are divided by one plus the number of associated companies. This division applies equally to all the associated companies in the group. The purpose is to prevent businesses from artificially splitting profits across multiple companies to keep each below the small profits threshold.

Not all related companies count as associated. Dormant companies (those with no trade and no investment activity) are excluded. A company is considered dormant for this purpose if it has had no significant accounting transaction during the relevant period other than filing fees or shares taken by subscribers. Companies held purely as investment holding companies where they hold shares in trading subsidiaries need careful consideration — the rules can be complex and professional advice may be worthwhile.

For example, a company with two associated companies would have its thresholds divided by three:

• Lower limit: £50,000 / 3 = £16,667
• Upper limit: £250,000 / 3 = £83,333

This means the small profits rate of 19% would only apply to profits of £16,667 or less, and the full 25% rate would apply above £83,333. The marginal relief band narrows significantly with more associated companies, making it harder for group structures to benefit from the lower rates.

What Changed in April 2023

The current two-rate corporation tax system was introduced on 1 April 2023, replacing the flat 19% rate that had applied to all companies regardless of profit level since April 2017. This was the most significant change to corporation tax in recent years and represented a 6 percentage point increase for the largest companies.

Prior to April 2023, all UK companies paid corporation tax at a flat rate of 19% on their taxable profits. There was no distinction between small and large companies, and marginal relief did not exist. The introduction of the 25% main rate means that companies with profits above £250,000 now pay significantly more tax than they did under the flat rate system.

The change also reintroduced the concept of associated companies for dividing the rate thresholds. This concept had been relevant before 2015 when a similar tiered rate structure existed, but was irrelevant during the flat rate period from 2017 to 2023. Companies that had not previously needed to consider their associated company count now need to account for it again when calculating their corporation tax liability.

For 2025/26, the rates and thresholds remain unchanged from when the system was introduced. The small profits rate is still 19%, the main rate is still 25%, and the marginal relief limits are still £50,000 and £250,000. No changes to these rates have been announced in recent budgets, so companies can plan with reasonable confidence that these rates will continue for the near future.

Worked Examples

Example 1: Small Profits — £40,000

A small consultancy company with taxable profits of £40,000 and no associated companies:

• Profit: £40,000
• Rate applied: Small profits rate (profit is below £50,000)
• Corporation tax: £40,000 x 19% = £7,600
• Effective rate: 19%
• Profit after tax: £32,400

Because the profit is below the £50,000 lower limit, the small profits rate of 19% applies in full. There is no marginal relief calculation needed. The company retains £32,400 of its profits after tax.

Example 2: Marginal Relief Band — £100,000

A growing company with taxable profits of £100,000 and no associated companies:

• Profit: £100,000
• Tax at main rate: £100,000 x 25% = £25,000
• Marginal relief: (£250,000 - £100,000) x 3/200 = £2,250
• Corporation tax: £25,000 - £2,250 = £22,750
• Effective rate: 22.75%
• Profit after tax: £77,250

The company falls within the marginal relief band. The effective rate of 22.75% is between the 19% small profits rate and the 25% main rate. The marginal relief of £2,250 reduces the tax bill from what it would be at the flat 25% rate.

Example 3: Main Rate — £300,000

A larger company with taxable profits of £300,000 and no associated companies:

• Profit: £300,000
• Rate applied: Main rate (profit exceeds £250,000)
• Corporation tax: £300,000 x 25% = £75,000
• Effective rate: 25%
• Profit after tax: £225,000

Because the profit exceeds the £250,000 upper limit, the main rate of 25% applies with no marginal relief. Every pound of profit is taxed at 25%.

Example 4: Impact of Associated Companies — £100,000 with 1 Associated Company

A company with taxable profits of £100,000 and one associated company:

• Profit: £100,000
• Associated companies: 1
• Adjusted lower limit: £50,000 / 2 = £25,000
• Adjusted upper limit: £250,000 / 2 = £125,000
• Tax at main rate: £100,000 x 25% = £25,000
• Marginal relief: (£125,000 - £100,000) x 3/200 = £375
• Corporation tax: £25,000 - £375 = £24,625
• Effective rate: 24.63%

Compare this to Example 2 where the same profit with no associated companies resulted in a tax bill of £22,750. The associated company reduces the thresholds, meaning less marginal relief is available. The effective rate increases from 22.75% to 24.63% purely because of the associated company.

Payment Dates

Corporation tax is due nine months and one day after the end of the accounting period. For a company with a 31 March year end, the payment deadline is 1 January of the following year. For a company with a 31 December year end, the payment deadline is 1 October of the following year. Missing this deadline results in interest being charged on the unpaid amount from the due date.

Large companies — those with profits above £1.5 million — must pay corporation tax in quarterly instalments rather than a single payment. The instalments are due in months 7, 10, 13, and 16 of the accounting period. For a company with a 31 March year end, this means payments on 14 October, 14 January, 14 April, and 14 July. Very large companies (profits above £20 million) pay even earlier, with instalments starting in month 3 of the accounting period.

The Company Tax Return (CT600) must be filed within 12 months of the accounting period end. This is separate from the payment deadline — the tax is typically due before the return. Late filing penalties are:

• 1 day late: £100
• 3 months late: another £100
• 6 months late: HMRC estimate of tax due, or 10% of unpaid tax
• 12 months late: additional 10% of unpaid tax

If the return is late three times in succession, the initial penalties increase from £100 to £500 each.

Common Mistakes

1. Forgetting Associated Companies

Many business owners with multiple companies forget to account for associated companies when calculating their corporation tax. Associated companies reduce the marginal relief thresholds, which can significantly increase the effective tax rate. A company with £100,000 profit and no associated companies pays an effective rate of 22.75%, but with four associated companies (thresholds divided by five), the same company would pay the full 25% main rate because the upper limit drops to £50,000.

2. Confusing Revenue with Profit

Corporation tax is charged on taxable profits, not on total revenue or turnover. A company with £500,000 in revenue but £450,000 in allowable expenses only pays tax on £50,000 of profit. Ensure you are entering your taxable profit (after all allowable deductions) into the calculator, not your total revenue figure.

3. Misunderstanding the Marginal Rate

The marginal rate within the relief band is 26.5%, not 25%. This means that for profits between £50,000 and £250,000, each additional pound of profit is taxed at 26.5p. This is higher than the main rate of 25% and is sometimes overlooked when making decisions about the timing of income or expenses. Understanding this elevated marginal rate is crucial for effective tax planning within the band.

4. Missing the Payment Deadline

Corporation tax is due nine months and one day after the accounting period end, which is before the filing deadline of 12 months. Many companies focus on the filing deadline and forget that the payment is due earlier. Late payment incurs interest from the due date. Setting a reminder for the payment date, not just the filing date, is essential to avoid unnecessary costs.

5. Not Claiming All Allowable Deductions

Companies sometimes pay more corporation tax than necessary by failing to claim all available deductions. Common missed deductions include capital allowances on equipment, R&D tax relief for qualifying projects, pension contributions, and the annual investment allowance. Review your expenses carefully and consider professional advice to ensure you are claiming everything you are entitled to.