How corporation tax works for 2026/27, the 19% and 25% rates and marginal relief, the pay before you file deadlines, and how to reduce the bill.
If you run a limited company, corporation tax is the main tax your business pays, and understanding it helps you plan, budget and avoid nasty surprises. This guide explains what corporation tax is, the rates for the 2026/27 financial year, how it is worked out, the deadlines that catch people out, and the legitimate ways to reduce it.
Corporation tax is the tax a limited company pays on its profits. Unlike income tax, there is no tax free allowance for companies, so tax is due on the first pound of profit. The company is responsible for working out what it owes, reporting it on a return and paying it, which is why good records and a good accountant make such a difference.
Corporation tax is charged on a company's taxable profits, which include trading profits from its main activity, investment income such as interest, and chargeable gains from selling assets. From this you deduct allowable business costs, including most running expenses and, importantly, the salaries you pay yourself and your staff, which is why how you take money out of the company matters so much.
There are effectively three layers. The small profits rate of 19% applies to companies with profits up to £50,000. The main rate of 25% applies to profits above £250,000. Between £50,000 and £250,000, marginal relief gradually increases the effective rate from 19% towards 25%, so companies in that band pay somewhere in between. If you have associated companies, those thresholds are shared between them.
Corporation tax has an unusual timing quirk. The tax itself is due 9 months and 1 day after the end of your company's accounting period, but the corporation tax return, known as the CT600, is not due until 12 months after the period ends. In other words, you have to pay before you have to file, which surprises many new directors. Missing either deadline brings penalties and interest.
You only pay corporation tax on profit, so claiming every allowable cost reduces the bill. On top of everyday running costs, capital allowances let you deduct the cost of equipment, and the Annual Investment Allowance often allows the full cost in the year of purchase. Employer pension contributions for directors and staff are usually deductible too, and some companies qualify for Research and Development relief, which can be very valuable for genuine innovation.
You pay corporation tax electronically, for example by bank transfer, using your company's payment reference. Because payment is due before the return, it is wise to work out the figure early and set the money aside through the year. If the company cannot pay on time, contacting HMRC about a Time to Pay arrangement is far better than missing the deadline.
Corporation tax rewards forward planning. Timing equipment purchases, making employer pension contributions, and getting the balance of salary and dividends right can all reduce what the company and you personally pay. Because the rules interact, this is exactly the sort of thing worth reviewing before your year end rather than after.
19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief giving a rate in between for profits between those figures.
The tax is due 9 months and 1 day after your accounting period ends, while the CT600 return is due 12 months after, so you pay before you file.
No. Unlike income tax, companies have no tax free allowance, so corporation tax is due on the first pound of taxable profit.
Claim all allowable expenses and capital allowances, make employer pension contributions, and consider Research and Development relief if you qualify.
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