UK corporation tax rates 2025/26

From April 2023, HMRC reintroduced a two-tier corporation tax system that had been simplified to a flat 19% for many years. The current structure:

  • Small profits rate: 19% — applies to companies with profits up to £50,000
  • Main rate: 25% — applies to companies with profits over £250,000
  • Marginal relief — applies to companies with profits between £50,000 and £250,000, creating an effective marginal rate of approximately 26.5% in the tapering band
The Marginal Relief Trap

Companies with profits between £50,000 and £250,000 face an effective marginal rate of 26.5% — higher than the 25% main rate. This is because as profits increase toward £250,000, the marginal relief credit is progressively withdrawn. Pension contributions and capital allowances can be used to push profits below £50,000 to secure the 19% rate.

Associated companies and the threshold reduction

If a company has associated companies (broadly: other companies under common control), the £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. So a company with two associates has thresholds of £50,000/3 = £16,667 and £250,000/3 = £83,333. This is a significant trap for company directors who own multiple limited companies.

Frequently asked questions

When is my corporation tax return due?
Companies must file their CT600 corporation tax return within 12 months of the end of the accounting period. However, the tax itself must be paid within 9 months and 1 day of the year-end for most small companies. Large companies (profits over £1.5 million) must pay in quarterly instalments. Missing payment deadlines results in interest charges; missing filing deadlines results in automatic penalties starting at £100.
Can I reduce corporation tax through pension contributions?
Yes — employer pension contributions are a fully allowable business expense and reduce taxable profit pound for pound. For a company paying 25% CT, a £10,000 employer pension contribution saves £2,500 in corporation tax while the full £10,000 goes into the pension. This is generally more tax-efficient than extracting the same money as salary or dividends. The contribution must be “wholly and exclusively” for the purposes of the trade and, if for a director-shareholder, must not be considered excessive by HMRC.