The BIG Corporation Tax Guide (2026/27)

Corporation Tax is the tax limited companies pay on their taxable profits.

Not turnover. Not money through the bank. Profits.

HMRC says taxable profits can include trading profits, investment income and chargeable gains from selling assets.

That is the bit people often miss.

A company can have plenty of money coming in, but Corporation Tax is not based on that headline number. It is based on profit.

And another thing that catches people out: the tax figure is not always the same as the profit shown in the accounts. HMRC says the profit or loss for Corporation Tax can differ from the profit or loss in the annual accounts because the tax calculation includes its own adjustments, disallowable costs, and allowances.

This guide covers the bits that actually matter:

• how much Corporation Tax companies pay

• when it’s due

• how the calculation works in real life

• what accountants actually do

• what directors are still responsible for

No fluff. Just the bits that matter.

Corporation Tax rates

For most ordinary UK limited companies, Corporation Tax does not start at 25%.

If taxable profits are £50,000 or less, the rate is 19%.

If taxable profits are between £50,000 and £250,000, Marginal Relief applies, so the effective rate rises gradually.

The full 25% rate only applies once taxable profits go above £250,000.

So for many ordinary freelancers and owner-managed limited companies, the starting Corporation Tax rate is 19%, not 25%.

That matters, because a lot of smaller business owners hear “Corporation Tax is 25% now” and assume that applies to them straight away. In many cases, it doesn’t.

The thresholds can be reduced if there are associated companies or a short accounting period.

The confusing middle bit: Marginal Relief

Marginal Relief is the bit that stops the rate jumping suddenly from 19% to 25%.

If profits sit between £50,000 and £250,000, many companies can reduce the bill below the full 25% main rate. HMRC also says those limits are reduced for short accounting periods and reduced again by the number of associated companies.

That is why the original version needed softening.

It is not quite right to say businesses in this band pay 21%, 22% or 23% as if those are fixed rates. The real answer is that the effective rate rises gradually, and the exact bill depends on the profit figure, the length of the accounting period and whether there are associated companies.

So yes, the middle bit is more fiddly. But the main point is still simple enough:

small profits start at 19%
very large profits hit 25%
the middle works its way up gradually

A simple example

If a company makes £40,000 profit:

Corporation Tax would be:

£40,000 × 19% = £7,600

That leaves £32,400 in the company after tax.

That money can then be:

• paid to the director as dividends

• reinvested in the business

• left in the company for future use

That is a much more useful way to think about Corporation Tax than just seeing it as a random bill from HMRC. It is simply tax on the company’s profit before you decide what to do with what is left.

Associated companies

This is one of the easiest places to get caught out.

HMRC says an associated company generally exists where one company controls the other, or both are under the control of the same person or persons. Where a company has associated companies, the £50,000 and £250,000 limits are divided by the total number of companies in the calculation, that is, your company plus the associated companies.

So if your company has one associated company, the usual limits are usually cut in half to £25,000 and £125,000.

That means the higher effective rates can arrive much sooner than people expect.

This is one of those rules that sounds like it only matters to bigger groups, but it can catch small business owners too if they have more than one company.

When Corporation Tax is due

For companies with taxable profits of up to £1.5 million, Corporation Tax is usually due 9 months and 1 day after the end of the accounting period.

The Company Tax Return is due later, usually 12 months after the end of the accounting period.

That gap matters, because the tax payment date arrives before the filing deadline.

So if a company has a 31 March 2027 accounting period end, it would usually need to pay its Corporation Tax by 1 January 2028, even though the Company Tax Return would not usually be due until 31 March 2028.

That surprises a lot of directors.

They assume the tax is due when the return is filed. It isn’t.

If a company’s profits are at an annual rate of more than £1.5 million, it will usually have to pay Corporation Tax by instalments instead. HMRC also says those thresholds are reduced for associated companies.

Corporation Tax and Personal Tax are not the same thing

This is another area that causes a lot of confusion.

A limited company creates two separate tax layers.

First, the company pays Corporation Tax on its taxable profits.

Then the director or shareholder may pay personal tax when money is taken out of the company as salary, dividends or other forms of remuneration. HMRC is clear that dividends are not business costs when you work out Corporation Tax.

That is why “how much tax the company pays” and “how much tax the owner pays” are related, but not the same question.

It is very common for business owners to blur those two together. But they are separate, and once you understand that, company tax starts to make a lot more sense.

What reduces Corporation Tax

HMRC’s current company guidance says a revenue expense can be fully deducted if it is not specifically disallowed and only has a business purpose. That is basically the company version of the wholly-and-exclusively rule.

If you can clearly separate the business and non-business parts, part of the expense may be deductible.

Client entertainment is one example HMRC gives of a specific disallowance.

So yes, genuine business costs reduce taxable profit. But not everything a company pays for automatically counts.

That is where a lot of internet tax advice goes off the rails.

Equipment, capital allowances and the bit people oversimplify

This is where people often get a bit lazy with the explanation.

Capital items are not usually treated like ordinary day-to-day expenses.

HMRC says the Annual Investment Allowance lets you deduct the full value of most qualifying plant and machinery from profits before tax, up to £1 million.

But cars do not qualify for AIA.

There are also other capital-allowance routes. HMRC says only companies can claim full expensing and the 50% first-year allowance for certain new plant and machinery, and full expensing gives a 100% first-year deduction for qualifying expenditure.

So the simpler way to explain it is this:

Small running costs usually reduce profit in the normal way.

Bigger capital purchases often go through capital allowances instead.

That is the broad picture most directors need to understand.

What directors are responsible for

Even if a company hires an accountant, the directors do not hand over the legal responsibility.

GOV.UK says directors must:

• keep company records

• prepare annual accounts

• complete the Company Tax Return

• file accounts and the Company Tax Return

• pay Corporation Tax

GOV.UK also says you can hire an accountant or other professional to help, but you are still legally responsible for the company’s records, accounts and performance.

That is worth saying plainly:

An accountant helps. A director remains responsible.

That doesn’t mean the director has to do everything personally. It just means the responsibility still sits with them.

What an accountant usually does

In practice, accountants usually prepare the statutory accounts, turn the accounts figures into a Corporation Tax computation, prepare the CT600, and help make sure the separate HMRC and Companies House deadlines are not missed.

GOV.UK also confirms you can appoint an agent to file the Company Tax Return and give your accountant or tax adviser the credentials they need to file accounts.

A good accountant also tends to flag the decisions that move the numbers around, such as:

• salary

• dividends

• pensions

• timing of purchases

• how much tax to reserve

That is often where the real value is.

Not just filing the numbers after the event, but helping you avoid getting caught out before the deadlines land.

A simple habit that saves pain later

One sensible habit is to set money aside for Corporation Tax as the year goes on.

For Corporation Tax alone, the eventual bill will often sit somewhere between 19% and 25% of taxable profits, depending on the band you fall into and whether Marginal Relief applies.

That is only a rough planning guide, not a substitute for a proper estimate, but it is much better than getting to the payment deadline and realising the money has already been spent.

A lot of Corporation Tax stress is not really about the calculation.

It is about cash flow.

Final thought

Corporation Tax is not usually the frightening part.

The hard part is understanding the difference between accounts profit and taxable profit, spotting the deadlines early enough, and keeping enough cash in the company to pay the bill when it falls due.

Get those basics right and the rest becomes much less dramatic.