What Is Corporation Tax?
Corporation tax is the tax that UK limited companies (and some other organisations) pay on their taxable profits. It's charged on profits from trading, investments, and asset disposals. Unlike income tax, corporation tax is not deducted at source — companies calculate and pay it themselves.
Corporation tax applies to UK-resident companies on their worldwide profits, and to non-UK-resident companies on profits from UK permanent establishments.
Corporation Tax Rates 2026/27
| Profits | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001–£250,000 | 19–25% | Marginal relief applies |
| Over £250,000 | 25% | Main rate |
These thresholds apply to a full 12-month accounting period. For shorter periods, they're scaled proportionally. If a company has associated companies, the thresholds are divided by the total number of associates (including the company itself).
Marginal Relief
Marginal relief reduces the corporation tax bill for companies with profits between £50,000 and £250,000. The formula is:
Tax = Profits × 25% − (3/200) × (Upper Limit − Profits)
Within this band, each additional £1 of profit effectively bears a 26.5% marginal rate — higher than the main rate of 25%. This is because extra profit reduces the marginal relief deduction. If your profits are in this range, it may be worth planning to either stay below the lower limit or push above the upper limit.
Filing and Payment Deadlines
| Obligation | Deadline |
|---|---|
| Corporation tax payment | 9 months and 1 day after accounting period end |
| CT600 return filing | 12 months after accounting period end |
| Large company quarterly instalments | Start from month 7 of the accounting period |
| R&D relief claims | Up to 2 years after accounting period end |
HMRC charges interest on late payment from the day after the due date. Late filing attracts an automatic £100 penalty, rising to £200 for returns more than 3 months late, then 10% of unpaid tax after 6 months.
Allowable Deductions
Companies can deduct expenses that are incurred wholly and exclusively for the purposes of the trade. Common deductions include:
- Salaries, wages, and bonuses (including director remuneration)
- Employer National Insurance contributions
- Employer pension contributions
- Rent, rates, and utilities for business premises
- Professional fees (accountants, solicitors)
- Insurance premiums
- Marketing and advertising costs
- Business travel (not ordinary commuting)
- Software, subscriptions, and professional journals
- Bad debts written off
Not deductible: client entertainment, personal expenditure, fines and penalties, depreciation (use capital allowances instead), and dividends.
Capital Allowances
Capital expenditure (buying assets) isn't deducted as an expense — instead, it qualifies for capital allowances. The main types:
Annual Investment Allowance (AIA)
Gives a 100% first-year deduction on qualifying plant and machinery up to £1,000,000 per year. AIA covers most equipment: computers, machinery, commercial vehicles, office furniture, and tools. The £1m limit is shared between associated companies.
Writing Down Allowances (WDA)
For expenditure exceeding the AIA limit, assets go into pools and are written down over time. The main pool attracts an 18% WDA per year; the special rate pool (integral features, long-life assets) attracts 6%.
Full Expensing
Since April 2023, companies can claim full expensing (100%) on qualifying new plant and machinery in the year of purchase — with no overall cap. This applies to main rate assets. Special rate assets qualify for 50% first-year allowance.
Other Reliefs
R&D Tax Credits
Companies carrying out qualifying research and development can enhance their deduction by 86% (under the R&D Expenditure Credit / merged scheme from April 2024) or claim a payable tax credit. R&D work means attempting to achieve an advance in science or technology by resolving a scientific or technological uncertainty.
Loss Relief
Trading losses can be carried back one year against previous profits, or carried forward indefinitely against future profits of the same or different trade. Group relief allows losses to be surrendered between group companies.