Corporation Tax for Small UK Companies: Rates, Marginal Relief and a Worked Example

If you run a UK limited company, Corporation Tax is one of the few bills you can't avoid, but working out exactly how much you'll owe isn't always straightforward once your profit sits in that awkward middle ground between £50,000 and £250,000. Our Corporation Tax Calculator does the sum for you, including marginal relief, but here's how the rates and thresholds actually fit together.

Who pays Corporation Tax

Corporation Tax is charged on the taxable profits of UK limited companies, as well as some clubs, co-operatives and other unincorporated associations. Sole traders and ordinary partnerships don't pay it, they pay Income Tax and National Insurance on their profits instead, which works quite differently. If you're weighing up a limited company against staying a sole trader, our guide to UK self-employed tax covers how that side of things works.

The small profits rate

For 2026/27, companies with taxable profits of £50,000 or less pay the small profits rate of 19%. This covers a large share of small limited companies, particularly newer businesses or those run alongside another job. There's no separate claim needed, if your profit falls under the threshold, the lower rate applies automatically when you file your Company Tax Return.

The main rate and marginal relief

Once taxable profit goes above £250,000, the full main rate of 25% applies to all of it. Between £50,000 and £250,000, rather than a sudden jump from 19% to 25%, marginal relief tapers the effective rate gradually upwards, so a company with profit just over £50,000 pays only slightly more than 19%, not immediately 25%.

How marginal relief is calculated

HMRC's marginal relief formula is: (Upper Limit minus your taxable profit), multiplied by the standard marginal relief fraction of 3/200, which is then deducted from the Corporation Tax you'd otherwise owe at the 25% main rate. It looks fiddly written out, but the effect is simple: the closer your profit is to £50,000, the more relief you get; the closer it is to £250,000, the less relief applies, until it disappears entirely and you're paying the full 25%.

What reduces your taxable profit

Corporation Tax is charged on taxable profit, not on turnover, so what counts as an allowable deduction makes a real difference to the final bill. Ordinary running costs, such as staff wages, rent, utilities, professional fees and stock, are deducted before profit is worked out in the first place. On top of that, capital allowances let you deduct the cost of qualifying equipment, such as computers, tools, or vehicles, from your taxable profit rather than spreading the cost over several years, up to the Annual Investment Allowance limit. Losses can help too. If your company makes a loss in one accounting period, that loss can usually be carried back against the previous year's profit or carried forward against future profits, reducing the tax due in those years. Exactly what qualifies, and how much you can claim, depends on your specific circumstances, so it's worth checking with an accountant rather than assuming a cost is deductible.

Worked example: £100,000 profit

Take a company with £100,000 of taxable profit for the year, comfortably in the marginal relief band.

Without marginal relief, this company would have paid £25,000. With it, the bill drops to £22,750, a saving of £2,250. Compare that to a company with £40,000 profit, comfortably under the £50,000 threshold, which pays a flat 19%, or £7,600, with no marginal relief calculation needed at all. Enter your own figures into our Corporation Tax Calculator to see exactly where your company lands.

Paying and filing Corporation Tax

Corporation Tax is due 9 months and 1 day after the end of your company's accounting period, ahead of the Company Tax Return itself, which is due 12 months after the period ends. That means the payment deadline usually arrives before the return confirming the exact figure, so most companies estimate and pay based on their management accounts, then file the return to confirm it. Missing either deadline brings penalties and interest, so it's worth calendaring both dates as soon as your accounting period is set.

Corporation Tax and how you pay yourself

Corporation Tax is deducted from company profit before anything is left to distribute as dividends, so it directly affects how much you can pay yourself. Once you know your Corporation Tax bill, the next question most directors face is how to split the remaining profit between salary and dividends. Our guide to Salary vs Dividends walks through how that works, and our Dividend vs Salary Calculator compares take-home pay after Corporation Tax, Income Tax and National Insurance for both routes.

Common mistakes

• Forgetting associated companies. If you control more than one active company, the £50,000 and £250,000 thresholds are shared between them, which can push a business into a higher effective rate sooner than expected.
• Paying dividends before working out Corporation Tax. Dividends can only come from profit after Corporation Tax, not before it, so working out your tax bill first with a break-even calculator and a Corporation Tax estimate helps avoid declaring more than the company can actually afford.
• Missing the payment deadline because it comes before the return. Many first-time directors assume the payment and filing deadlines match, but payment is due a full 3 months earlier than the return itself.
• Not tracking profit margin through the year. Keeping an eye on your profit margin as the year progresses makes it far easier to estimate your Corporation Tax bill in advance, rather than being surprised at year end.
• Not setting cash aside as profit builds up. Because Corporation Tax is paid in one lump sum months after your accounting period ends, it's easy to spend or distribute profit through the year and then find the tax bill lands before there's enough cash left to cover it. Many companies set aside roughly a fifth of profit as it's earned, so the eventual payment isn't a shock.

For the sole trader alternative, where Income Tax and National Insurance replace Corporation Tax entirely, see our self-employed tax guide, and use our VAT Calculator if your company is VAT registered and you need to check figures separately from Corporation Tax.

Frequently asked questions