Corporation tax is charged on the profits of UK limited companies, including trading profits, investment income, and chargeable gains. For the 2025/26 tax year, the rate depends on how much profit your company makes — and getting this right matters, because HMRC charges interest on late or underpaid tax.
The 2025/26 corporation tax rates
The UK has a two-rate system introduced in April 2023, replacing the previous flat 19% rate:
| Taxable profit | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% (small profits rate) | Full rate for small companies |
| £50,001 to £250,000 | 19%–25% (marginal relief) | Effective rate tapers between the two rates |
| Over £250,000 | 25% (main rate) | Applied to profits above the upper threshold |
What is marginal relief?
Marginal relief is a mechanism that gradually increases the effective corporation tax rate as profits rise from £50,000 to £250,000, so there is no cliff edge between the two rates. The HMRC formula for marginal relief is:
Where the upper limit is £250,000 (or proportionally reduced for associated companies and short accounting periods).
For example, a company with £150,000 taxable profit would pay:
- Main rate tax: £150,000 × 25% = £37,500
- Marginal relief: (3/200) × (£250,000 − £150,000) = £1,500
- Net corporation tax: £36,000 (effective rate: 24%)
Associated companies and reduced thresholds
The £50,000 and £250,000 thresholds are divided by the number of associated companies you control. If you own two companies, each threshold is halved — meaning the small profits rate only applies up to £25,000 and the marginal relief band runs to £125,000. This is an important consideration for contractors running multiple entities or holding companies.
What counts as taxable profit?
Corporation tax is charged on profit after allowable deductions. Key items that reduce taxable profit include:
- Salaries and employer NI — director and employee remuneration is fully deductible
- Employer pension contributions — deductible when paid, with no cap for corporation tax purposes
- Business expenses — travel, office costs, professional subscriptions, equipment (subject to the capital allowances rules)
- Annual Investment Allowance (AIA) — up to £1 million of qualifying capital expenditure can be deducted in full in the year of purchase
- R&D relief — enhanced deductions for qualifying research and development expenditure
When is corporation tax due?
For companies with profits under £1.5 million, corporation tax is due nine months and one day after the end of the accounting period. For example, if your company year-end is 31 March 2025, tax is due by 1 January 2026. A company tax return (CT600) must also be filed within 12 months of the accounting period end.
Large companies (profits over £1.5 million) must pay in quarterly instalments during the accounting period — a very different cash flow consideration.
Paying yourself from your limited company
The most tax-efficient strategy for most owner-managed companies is to pay a low salary (typically at the National Insurance primary threshold of £12,570) and extract remaining profits as dividends. Dividends are paid from post-corporation-tax profits, so the overall tax burden depends on both the corporation tax paid and the dividend tax on the personal side. The IR35 calculator models this full picture for contractors.