UK companies pay corporation tax at 19 percent on profits up to £50,000 and 25 percent on profits above £250,000. Between those figures, the company pays the main rate of 25 percent reduced by marginal relief, which works out at an effective marginal rate of 26.5 percent on profits in that band.
The limits are shared between associated companies and reduced for short accounting periods. Understanding how this works helps you estimate your tax bill and plan ahead.
The rates
- Profits up to £50,000: 19 percent, the small profits rate.
- Profits over £250,000: 25 percent on all profits, the main rate.
- Profits between £50,000 and £250,000: 25 percent less marginal relief.
Marginal relief is calculated as 3/200 of the difference between the upper limit of £250,000 and the company's profits. The effect is that the first £50,000 is taxed at 19 percent and each pound above that, up to £250,000, is taxed at 26.5 percent.
A worked example
A company with no associated companies has taxable profits of £100,000 for a 12-month period.
- Tax at 25 percent: £25,000
- Marginal relief: 3/200 x (£250,000 less £100,000) = £2,250
- Corporation tax payable: £22,750
The same answer comes from taxing £50,000 at 19 percent, which is £9,500, and £50,000 at 26.5 percent, which is £13,250. The average rate is 22.75 percent.
Associated companies
The £50,000 and £250,000 limits are divided by the number of associated companies. Broadly, companies are associated if one controls the other or both are under the control of the same person or group of persons. Companies controlled by close family members can sometimes be associated too.
If the company in the example has one associated company, its limits become £25,000 and £125,000. Its tax becomes £25,000 less marginal relief of 3/200 x (£125,000 less £100,000), which is £375, giving £24,625. That is £1,875 more than before, on the same profit.
Dormant companies are generally ignored, but anyone setting up an additional company should factor this in.
Short accounting periods
The limits are also pro-rated for accounting periods of less than 12 months. A company with a six-month period has limits of £25,000 and £125,000. This often affects a company's first period, or a period where the year end is changed.
When it is paid
Most companies pay corporation tax nine months and one day after the end of the accounting period. For a 31 March 2026 year end, that is 1 January 2027. The return itself is due 12 months after the year end.
Large companies, with profits over £1.5m, pay in quarterly instalments based on the expected liability for the current year. The £1.5m limit is also divided among associated companies.
Planning points
Because profits between £50,000 and £250,000 are taxed at an effective 26.5 percent, deductions in that band are worth more than at the main rate. Examples include:
- Employer pension contributions for directors, which are deductible when paid and free of National Insurance.
- Bonuses accrued at the year end and paid within nine months.
- Equipment purchases qualifying for the Annual Investment Allowance or full expensing, made before the year end.
The Autumn Budget on 28 October 2026 may change future figures, so check the position before making decisions based on later years.
What to do
- Estimate your taxable profit before your year end, not after.
- Check how many associated companies you have, and the effect on your limits.
- Set aside cash each month for the corporation tax due nine months after the year end.
- Consider pension contributions or equipment purchases if profits fall in the marginal relief band.
If you would like us to estimate your corporation tax and look at the options, book a free call.
