UK Corporation Tax Rates & Marginal Relief Explained (2025/26)

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UK corporation tax moved from a single flat rate to a two-tier system in April 2023, and the rules reward careful profit planning. This guide explains the 19% and 25% rates, how marginal relief works and why it produces a 26.5% effective rate, how associated companies share the thresholds, and the deadlines every company director must meet.

What are the UK corporation tax rates for 2025/26?

For the 2025/26 financial year, a company pays the small profits rate of 19% if its taxable profits are £50,000 or less, and the main rate of 25% if profits exceed £250,000. Around 70% of active UK companies fall under the £50,000 threshold and pay 19%. These rates have applied since the two-tier system began in April 2023 and are unchanged for the year.

The shift from the old flat 19% rate to a 25% main rate was a significant increase for larger companies — a business making £500,000 pays roughly £30,000 more than under the old regime. For company owners, this makes the rate band your profits fall into a central planning consideration, especially around the thresholds where the effective rate changes.

How does marginal relief work?

Marginal relief smooths the jump between 19% and 25% so companies don’t face a cliff edge as profits grow. Profits between £50,000 and £250,000 are charged at the 25% main rate, then reduced by a relief calculated with the standard fraction of 3/200. The effect is a tapered rate rising gradually from 19% toward 25% across the band.

The quirk is that the marginal rate on profits within this band is actually 26.5% — higher than the headline 25%. That’s because each extra pound of profit in the band not only attracts 25% but also erodes the relief. This counter-intuitive result is exactly why profits in the £50k–£250k range deserve planning attention, since reducing them can save tax at 26.5% rather than 19% or 25%.

What are associated companies and how do they affect the thresholds?

The £50,000 and £250,000 thresholds are divided by the number of associated companies. Two companies under common control each get a £25,000 lower limit and £125,000 upper limit. This stops business owners from splitting activities across multiple companies to keep each below the small profits threshold and pay 19% throughout.

Companies are associated when one controls the other, or both are under common control by the same person or persons. Dormant companies are excluded. For anyone running a group or several companies, the associated company rules can dramatically change the corporation tax position, pushing profits that would have been taxed at 19% into the marginal relief band — a key reason group structures need careful tax planning.

When is corporation tax due and how is it paid?

For most companies with profits under £1.5 million, corporation tax is due nine months and one day after the end of the accounting period. The company self-assesses its liability, files a CT600 return within twelve months of the period end, and pays the tax by the earlier deadline. Larger companies pay in quarterly instalments instead.

This split between the payment deadline and the filing deadline catches some directors out: the tax is due before the return must be filed. Missing either triggers penalties and interest. Registering for corporation tax within three months of starting to trade, and tracking both deadlines from the accounting period end, are basic compliance disciplines every company must maintain.

How do I reduce my corporation tax bill legitimately?

Corporation tax is charged on taxable profit, so legitimate planning focuses on reducing that profit through allowable means: claiming all deductible business expenses, capital allowances on equipment, the Annual Investment Allowance for up to £1 million of qualifying plant and machinery, employer pension contributions, and reliefs like R&D credits. Loss relief and group relief can also offset profits.

These are not loopholes but the deductions and incentives Parliament built into the system. The art is in timing and structuring — bringing forward a capital purchase before year-end, making an employer pension contribution, or claiming R&D relief can each move profits into a lower band or reduce the bill outright. For companies near the £50,000 or £250,000 thresholds, this planning is especially valuable.

How does corporation tax interact with how I pay myself?

For owner-managed companies, corporation tax is only half the picture — how profit is extracted matters just as much. A salary is deductible for corporation tax but attracts income tax and National Insurance; a dividend is paid from post-corporation-tax profit but carries no NIC and lower dividend tax rates. The optimal mix depends on profit level and personal circumstances.

This interaction between corporation tax and personal extraction is the defining tax question for company directors. The 25% main rate, the reduced dividend allowance and the 15% employer NIC all feed into the calculation, which is why owner-managers revisit their salary-versus-dividend split each tax year rather than setting it once and forgetting it.

A practical example: marginal relief on £150,000 profit

Take a company with £150,000 of taxable profit in 2025/26. It’s above the £50,000 small profits threshold but below the £250,000 main rate threshold, so marginal relief applies. The tax is calculated at 25% and then reduced by the marginal relief, producing an overall effective rate between 19% and 25% — lower than the headline 25% the company might have feared.

If the same company made a £20,000 employer pension contribution, reducing profit to £130,000, the tax saved on that contribution reflects the 26.5% marginal rate within the band — more than the 19% or 25% headline rates. This example shows why understanding marginal relief turns corporation tax from a fixed cost into something a company can actively manage.

Planning around the corporation tax thresholds

The two thresholds create natural planning points. Companies near £50,000 can sometimes stay in the 19% band by timing income and deductions; companies in the marginal band can target the 26.5% rate with contributions or capital spend; and companies near £250,000 benefit from any relief that keeps them below the full 25% main rate. Associated company rules complicate all of this and must be checked first.

Effective corporation tax planning is therefore a year-round activity tied to your profit forecast, not a year-end scramble. Reviewing expected profit before the accounting period ends — while there’s still time to make a pension contribution, buy equipment or claim a relief — is what separates companies that manage their tax from those that simply pay whatever the return produces.

How does corporation tax fit into the wider tax system?

Corporation tax is only one layer of the tax a company and its owner face. Profit is taxed first at the company level, then again when extracted as salary or dividends. This ‘double layer’ is why the headline corporation tax rate understates the total tax on company profits reaching the owner’s pocket, and why extraction planning matters as much as the rate itself.

It also interacts with VAT, employer National Insurance and the owner’s personal tax. A decision that lowers corporation tax — like a salary or pension contribution — affects personal tax and NIC too. Seeing corporation tax as part of an integrated picture, rather than in isolation, is what allows genuine efficiency, and it’s the approach our country tax guides take across every jurisdiction.

What records and returns does corporation tax require?

Every company must keep accounting records sufficient to prepare an accurate corporation tax return, prepare statutory accounts, and file a CT600 with HMRC alongside those accounts and a tax computation. Records must be kept for at least six years and must support every figure claimed, from income to expenses to capital allowances and reliefs.

The CT600 self-assesses the company’s liability, so accuracy is the company’s responsibility. Errors, whether understating tax or over-claiming relief, can lead to penalties and interest on enquiry. This is why robust bookkeeping throughout the year — not a year-end reconstruction — underpins corporation tax compliance, giving both an accurate return and the evidence to defend it if HMRC asks questions.

Common corporation tax mistakes to avoid

Frequent errors include overlooking associated companies and wrongly assuming the 19% rate, missing the payment deadline that falls before the filing deadline, failing to claim available reliefs like the AIA or R&D credits, and not planning around the marginal relief band. Each can cost a company money or trigger penalties and interest.

Avoiding them comes down to understanding your profit band and associated company position, tracking both key deadlines from the period end, claiming every legitimate relief, and reviewing profits before year-end while there’s still time to act. These disciplines turn corporation tax from a passive bill into a managed cost, and they’re well within reach of any company with sound bookkeeping and a forward-looking approach.

Why corporation tax planning matters year-round

The most effective corporation tax planning happens before the accounting period ends, not after. Once the period closes, the profit is fixed and most opportunities — pension contributions, capital purchases, timing of income — are gone. Reviewing your expected profit through the year lets you act while you still can, whether to drop below a threshold or claim a relief.

This forward-looking approach is what distinguishes companies that manage their tax from those that simply pay it. Tied to a realistic profit forecast and revisited as the year unfolds, corporation tax planning becomes a routine part of running the business rather than a year-end shock — and it consistently delivers better outcomes than leaving everything to the return.

How do losses reduce corporation tax?

If a company makes a trading loss, it isn’t simply lost. Losses can usually be set against other profits of the same period, carried back to reclaim tax paid in the previous year, or carried forward to offset future profits. This loss relief is a valuable feature that smooths the tax burden for businesses with uneven results across years.

Groups of companies can also share losses through group relief, letting a profitable company use a loss-making sibling’s losses to reduce its own tax. Understanding how and when to use loss relief — particularly the choice between carrying back for an immediate refund and carrying forward against future profits — is an important part of corporation tax planning for any company with variable profitability.

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