UK Corporation Tax Calculator 2026/27

How Is UK Corporation Tax Calculated?

UK Corporation Tax is paid by limited companies on their taxable profits. From April 2023, the rate depends on your profit level. Small companies with profits up to £50,000 pay 19%, while companies with profits above £250,000 pay 25%. Between these thresholds, Marginal Relief reduces the effective rate gradually from 25% toward 19%.

Marginal Relief Explained

Marginal Relief prevents a cliff-edge jump from 19% to 25% for profits between £50,000 and £250,000. It is calculated as: 3/200 × (£250,000 − your profit). This means a company with £150,000 profit pays an effective rate of about 22.5% — not a sudden jump to 25%.

What Counts as Taxable Profit

Corporation tax is charged on profit, not turnover — and the profit figure HMRC uses is not always the one in your accounts. You deduct allowable business expenses incurred wholly and exclusively for the trade, then adjust for items treated differently for tax.

The most significant adjustment is capital spending. Buying equipment is not a straightforward expense: depreciation in your accounts is added back, and capital allowances are claimed instead. The Annual Investment Allowance lets most companies write off qualifying plant and machinery in full in the year of purchase, which can move a company below a threshold in a single stroke.

Two other items catch small companies out. Client entertaining is never deductible, however commercially necessary it felt. And salary is deductible but dividends are not — dividends are paid out of profit that has already borne corporation tax, which is the whole reason the salary-versus-dividend split is a real decision rather than a formality.

Why the Effective Rate Sits Between 19% and 25%

The headline rates suggest a cliff at £50,000, but there isn't one. Marginal relief smooths the transition, so a company earning £51,000 is not suddenly taxed at 25% on everything. What actually happens is subtler and worth understanding: the relief tapers away across the £50,000–£250,000 band, which means profit inside that range is effectively taxed at about 26.5% at the margin — higher than the 25% main rate itself.

That is the practical consequence: for a company in that band, an extra £1,000 of profit costs more tax than it would for a large company above £250,000. It is also why deductible spending, pension contributions and capital allowances are worth most precisely in that range.

Both thresholds are divided by the number of associated companies. If you control two companies, the small profits rate applies only up to £25,000 each rather than £50,000 — a rule that regularly surprises anyone who set up a second company for a separate venture.

Deadlines That Run in the Wrong Order

Corporation tax has an unusual quirk: the payment deadline falls before the filing deadline. Tax is due nine months and one day after the end of your accounting period, but the CT600 return is not due until twelve months after it. In practice you must calculate the liability well before you are required to file it.

Larger companies with profits above £1.5 million pay in quarterly instalments instead. Interest runs on late payment from the due date, and HMRC pays credit interest on tax paid early — modest, but it makes paying ahead of the deadline no worse than neutral. If a company makes a loss, it can often be carried back against the previous year's profit to generate a refund, which is worth checking before simply carrying it forward.

Frequently Asked Questions