If you are a UK limited company, you have heard of Corporation Tax. You must understand Corporation Tax UK small business rules to manage your finances and avoid unexpected tax bills.
For the 2026 financial year, two rates of Corporation Tax apply. The small profits rate is 19%, and the main rate is 25%, with Marginal Relief available for qualifying companies whose taxable profits fall between the relevant thresholds.
This guide explains the current Corporation Tax rates small businesses need to know. It also discusses how taxable profits are calculated, what expenses and reliefs may be available, and when a company needs to pay HMRC.
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What is Corporation Tax?
Corporation Tax is a tax applied to the taxable profits of limited companies and certain other organisations. Normally, a limited company calculates its taxable profit when preparing its Company Tax Return.
People often confuse taxable profit with turnover. You must understand that Corporation Tax is based on taxable profit, not on turnover.
How Does Corporation Tax Work?
Let’s understand how “Corporation Tax UK small business” actually works. It is a direct tax that limited companies and certain other organisations pay to HMRC on their annual taxable profits. IT is taxed on your trading profits, interest or income earned from company investments, or chargeable gains.
In simple terms, Corporation Tax is calculated on a company’s taxable profit, not its total sales revenue. This means if your business generates £100,000 in sales, it does not pay tax on that full amount. Instead, it subtracts allowable expenses, capital allowances, and any available tax reliefs. The tax rate is only applied to the final profit left over after these deductions.
What is the Corporation Tax Rate 2026 in the UK?
While understanding Corporation Tax UK small business needs to know the current Corporation Tax rates and corporation tax threshold.
For financial years beginning on or after 1 April 2026, the small profits rate of 19% is for companies with taxable profits under £50,000. However, the main Corporation Tax rate of 25% is for companies with profits above £250,000.
If your company has taxable profits between £50,000 and £250,000, you may qualify for Marginal Relief. It provides a gradual increase in the effective Corporation Tax rate between the small profits rate and the main rate.
What is Marginal Relief?
Marginal relief is a tapered reduction in Corporation Tax that applies if your company’s taxable profits are between £50,000 and £250,000.
It stops businesses from facing a sharp tax increase when crossing the lower limit (£50,000). With marginal relief, there is a gradual transition between the 19% small profits rate and the 25% main rate.
What is the Corporation Tax Threshold for Small Business?
The current lower and upper Corporation Tax UK small business thresholds are £50,000 and £250,000 respectively.
As mentioned, for the 2026 financial year, the standard Corporation Tax lower limit is £50,000. In contrast, the Corporation Tax upper limit is £250,000.
So, companies with taxable profits under £50,000 may qualify for the 19% small profits rate. Moreover, profits above £250,000 typically fall under the 25% main rate.
However, if the profits are between these limits, the company may qualify for Marginal Relief.
Note: the limits are reduced where your company has associated companies or an accounting period of less than 12 months.
How to Calculate Corporation Tax UK Small Business?
To calculate Corporation Tax, a UK small company starts with its accounting profits and makes the necessary tax adjustments, such as:
- Start with the company’s accounting profit.
- Add back expenses that are not deductible for Corporation Tax purposes.
- Apply the relevant capital allowances and balancing adjustments.
- Deduct eligible losses and applicable reliefs where the rules allow.
- Determine the company’s taxable profits.
- Apply the appropriate Corporation Tax rate and, where relevant, calculate Marginal Relief.
The final taxable profits are subject to the applicable Corporation Tax rules, including the small profits rate (19%), main rate (25%), or Marginal Relief where applicable.
So, multiplying the accounting profit by 19% will not always give the correct Corporation Tax bill.
When to Pay Corporation Tax?
A Corporation Tax UK small business must pay its Corporation Tax 9 months and 1 day after the end of its accounting period. The accounting period is your financial year. However, you may have 2 accounting periods in the year you set up your company.
If your taxable profits are more than £1.5 million, then you must pay your Corporation Tax in instalments. If you do not file your Company Tax Return on time, it can lead to late filing penalties, even if there is no tax to pay.
How to Pay Corporation Tax?
Different payment methods allow you to pay your Corporation Tax. You can pay your Corporation Tax electronically through your HMRC online account using your 17-character payment reference number. You can also pay through online bank accounts by Faster Payments or CHAPS. This is the fastest option.
However, BACS and Direct Debit (only if you already set it up before) previously required three working days.
How to Reduce Corporation Tax UK?
For a corporation tax UK small business, the tax can be reduced by claiming allowable business expenses, capital allowances, and relevant tax reliefs. You may reduce your Corporation Tax liability by claiming:
- Allowable business expenses
- Capital allowances
- Applicable tax reliefs
- Eligible losses
Depending on the circumstances, reliefs such as Research and Development (R&D) Relief may also apply. Furthermore, if your company’s profits fall between the relevant lower and upper limits, Marginal Relief may reduce the Corporation Tax payable. However, all your claims must meet HMRC rules and be supported by appropriate records.
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Final Thoughts
For UK small businesses, understanding Corporation Tax rules is crucial for accurate tax and financial planning. The small profits rate (19%) and main rate (25%) are two key rates of corporation tax. However, the amount of Corporation Tax payable can also depend on taxable profits, allowable expenses, associated companies, the accounting period, capital allowances, and applicable reliefs.
You should keep accurate records and identify the correct Corporation Tax accounting period when preparing and filing your return. If your tax affairs are complex, professional tax advice may be appropriate.
CAIL can help you review your company’s position, understand your Corporation Tax liability and ensure your tax affairs are managed accurately and efficiently. Get an instant quote today!