Current Corporation Tax Rates and Allowances

Since the founding of limited companies in the UK, Corporation Tax has been the tax charged on company profits. Understanding which rate applies to your company depends on how much profit you make and whether you have any associated companies. This article explains the current rates and the thresholds that determine what you'll pay.

Current Corporation Tax rates

For the 2025/26 tax year, there are two Corporation Tax rates:

Main rate: 25%

This applies if your company makes more than £250,000 profit.

Small profits rate: 19%

This applies if your company makes a profit of £50,000 or less.

The rate you pay depends on the profits made during your company's accounting period for Corporation Tax (the period covered by your Company Tax Return, which is usually the same as your accounting period).

Marginal Relief for profits between £50,000 and £250,000

If your company's profits fall between £50,000 and £250,000, you won't pay the full 25% main rate on all your profits. Instead, you may be entitled to Marginal Relief, which reduces the amount of Corporation Tax you owe. This creates a gradual increase in the tax rate as profits rise, rather than a sudden jump from 19% to 25%.

Associated company rules

The £50,000 and £250,000 thresholds are not always fixed. They must be adjusted in two situations:

Short accounting periods

If your accounting period is shorter than 12 months, the thresholds are reduced proportionately. For example, if your accounting period is only 6 months, the thresholds would be halved to £25,000 and £125,000.

Associated companies

The thresholds are divided by the total number of associated companies your company has. Associated companies are broadly companies under common control. If your company has one associated company (making two companies in total), the thresholds become £25,000 (£50,000 ÷ 2) and £125,000 (£250,000 ÷ 2). If you have two associated companies (three in total), they become £16,667 and £83,333, and so on.

This adjustment ensures that the relief is targeted at genuinely small businesses rather than groups that have split into multiple companies.

When rates changed during your accounting period

If your company's accounting period straddles 1 April (the date when Corporation Tax rates typically change), you'll need to work out how many days each rate applied and calculate the tax due for each portion separately.

For example, if your accounting period ran from 1 January 2023 to 31 December 2023:

• For 90 days (1 January 2023 to 31 March 2023), you'd apply the rate for the financial year starting 1 April 2022
• For 275 days (1 April 2023 to 31 December 2023), you'd apply the rate for the financial year starting 1 April 2023

The current two-tier rate structure (19% and 25%) came into effect on 1 April 2023. From 1 April 2015 to 31 March 2023, a single Corporation Tax rate applied to all companies regardless of profit level.

Ring fence companies

Different rates apply to 'ring fence' profits. These are profits from oil rights or extraction activities in the UK or on the UK continental shelf. If your company operates in this sector, separate rules and rates will apply.

Working out your profits

When you prepare your Company Tax Return, you'll calculate your company's taxable profit. This is not simply your turnover or the profit figure in your accounts.

Limited companies can deduct certain business expenses when calculating taxable profit. Whether an expense can be deducted depends on whether it's:

• A capital expense (costs to buy, sell or improve long-term assets like property, equipment or vehicles) – these generally cannot be deducted, though you may be able to claim capital allowances instead
• A revenue expense (day-to-day running costs) – these can be deducted if incurred wholly for business purposes

Some expenses are specifically disallowed and cannot be deducted at all, such as entertaining clients.

Allowances and reliefs

Various allowances and reliefs can reduce your Corporation Tax bill:

Capital allowances let you claim tax relief on capital expenses like equipment, machinery and business vehicles.

Research and Development (R&D) Relief is available if your company carries out qualifying R&D work.

The Patent Box allows a lower effective rate of Corporation Tax on profits from patented inventions.

Creative industry reliefs apply to companies making profits from theatre, film, television, animation or video games.

Trading losses can be used to reduce your Corporation Tax bill, either by carrying them forward to future periods or, in some cases, carrying them back.

What your company can claim depends on the nature of your business and its assets. Items that you or your employees get personal use from must be treated as a benefit and reported accordingly.

Getting help

Corporation Tax calculations can be complex, particularly when associated companies, Marginal Relief, or mixed accounting periods are involved. If you're unsure which rate applies to your company or how to calculate your taxable profit, speak to your accountant. Keeping accurate and detailed business records throughout the year will make the process much smoother.

Sources

• Corporation Tax rates, expenses and reliefs
• Rates and allowances for Corporation Tax

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.