What is Corporation Tax?
Corporation Tax is a tax charged on the taxable profits of UK companies and certain other organisations. For most UK limited companies, Corporation Tax is calculated on profits generated from trading, investments and chargeable gains after allowable expenses, tax reliefs and allowances have been taken into account.
What is the Corporation Tax rate in the UK?
For the 2026/27 financial year, the main Corporation Tax rate is 25% for companies with profits above £250,000. Companies with profits of £50,000 or less can generally qualify for the 19% small profits rate. Companies with profits between £50,000 and £250,000 may be entitled to Marginal Relief, which gradually increases the effective Corporation Tax rate between the small profits rate and main rate. These thresholds can be reduced where a company has associated companies or has a short accounting period.
Corporation Tax example
Suppose a UK limited company has taxable profits of £40,000 for a 12-month accounting period and has no associated companies. If it qualifies for the small profits rate: taxable profit £40,000, Corporation Tax rate 19%, Corporation Tax £7,600. The calculation can become more complicated where profits exceed £50,000 because Marginal Relief may apply.
What profits are subject to Corporation Tax?
Corporation Tax can apply to profits arising from trading activities, investments, and selling assets for more than they cost, where this creates a taxable chargeable gain. A company's accounting profit is not necessarily the same as its taxable profit. Adjustments may need to be made for expenditure that is not deductible for tax purposes and for available tax allowances and reliefs.
What expenses can reduce Corporation Tax?
Many expenses incurred wholly and exclusively for business purposes can generally be deducted when calculating taxable profits, subject to UK tax rules. Examples can include employee salaries, employer costs, professional fees, software subscriptions, office costs, business insurance, marketing expenditure and certain travel costs. The tax treatment depends on the nature of the expenditure. Capital expenditure, for example, is normally considered separately and may qualify for capital allowances instead.
When is Corporation Tax due?
For many companies with taxable profits of up to £1.5 million, Corporation Tax is normally due nine months and one day after the end of the accounting period. The Company Tax Return normally has a different deadline: 12 months after the end of the accounting period. Different payment rules can apply to larger companies.
What is a Company Tax Return?
A Company Tax Return reports the company's Corporation Tax position to HMRC. It includes the company's Corporation Tax calculation and is normally accompanied by the company's accounts and supporting tax computations. The CT600 forms part of the Company Tax Return.
What is Marginal Relief?
Marginal Relief applies to qualifying companies whose profits fall between the small-profits and main-rate thresholds. Rather than Corporation Tax suddenly increasing from 19% to 25% when profits exceed £50,000, Marginal Relief provides a gradual transition towards the main rate. The calculation can also be affected by associated companies.
What are associated companies?
Broadly, companies can be associated for Corporation Tax purposes where one company controls another or both are under common control, subject to detailed rules. Associated companies are important because the Corporation Tax profit thresholds are divided according to the number of associated companies. This means businesses operating through several companies may reach the effective Corporation Tax thresholds considerably sooner than a standalone company.
Corporation Tax and capital allowances
Businesses purchasing qualifying assets may be able to claim capital allowances. Depending on the expenditure and circumstances, relief may be available through mechanisms including the Annual Investment Allowance, Full Expensing, first-year allowances and writing-down allowances. Capital allowances can reduce taxable profits and therefore affect the amount of Corporation Tax payable.
Why Corporation Tax planning matters
Corporation Tax should not simply be considered at the filing deadline. For growing businesses, tax planning can involve reviewing expenditure, capital investment, remuneration, pension contributions, available reliefs and the timing of transactions before the accounting period ends. Understanding the company's expected taxable profit can also help directors plan cash flow for the Corporation Tax payment.
Corporation Tax for startups
Early-stage companies may make losses during their first years of trading and therefore have no immediate Corporation Tax liability. However, maintaining accurate records remains important. Depending on the circumstances, trading losses may potentially be used against other profits or carried forward for use against future profits. Technology and innovative businesses should also consider whether expenditure may qualify for relevant R&D tax relief.
Frequently asked questions
Do all limited companies pay Corporation Tax? A company does not necessarily have Corporation Tax to pay if it has no taxable profits. However, companies may still have filing and reporting obligations.
Is Corporation Tax charged on turnover? No. Corporation Tax is generally based on taxable profits, rather than simply the company's sales or turnover.
Is Corporation Tax the same as VAT? No. Corporation Tax is primarily a tax on company profits. VAT is a separate tax relating to taxable supplies of goods and services.
Can business expenses reduce Corporation Tax? Qualifying business expenditure can reduce taxable profits. However, not every expense appearing in the accounts is automatically deductible for Corporation Tax purposes.
Can capital expenditure reduce Corporation Tax? Qualifying capital expenditure may obtain tax relief through capital allowances such as the Annual Investment Allowance or Full Expensing.
Related terms: Corporation Tax Rate, CT600, Marginal Relief, Associated Companies, Allowable Expenses, Capital Allowances, Accounting Period, Profit and Loss Account, Dividend.
Explore our Corporation Tax calculator, Tax & Compliance services and 2026/27 Tax Savings Guide for further guidance on managing company tax efficiently.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.