How to Calculate Corporation Tax in the UK: 2026/27 Guide

Let’s be honest: many people want to start a business, but no one gets excited to calculate corporation tax. Every time you look at the formulas, your brain may go on strike. If you relate, you are not alone. However, if you run a limited company in the UK, you need to know how to calculate Corporation Tax to estimate your tax liability accurately and manage your business finances with confidence.
This guide explains how you can calculate Corporation Tax on taxable profits, Corporation Tax rates in 2026, and when and how to pay Corporation Tax.

What Is Corporation Tax?

Corporation Tax is a tax charged on the taxable profits of companies. It is also charged to certain other organisations in the UK. For many UK companies, the calculation starts with the profits shown in the company’s accounts. Those profits are then adjusted where necessary to comply with Corporation Tax rules.

Note that accounting profit and taxable profit are not necessarily the same. Accounting profits calculated under generally accepted accounting practice (GAAP) form the starting point for determining taxable profits. After that, relevant tax adjustments may be made.

So, a company should not simply multiply its accounting profit by a Corporation Tax rate and assume that this will be the final Corporation Tax liability. Both the Corporation Tax rate and the taxable profit need to be considered when calculating the amount due.

How Does Corporation Tax Work?

Before discussing “how to calculate Corporation Tax,” you need to understand how Corporation Tax works. Limited companies and other organisations pay this tax to HM Revenue and Customs (HMRC) based on the profits they make during an accounting period. Let’s understand this with an example:

Example of Corporation Tax Calculation:

Let’s assume your company earned £300,000. Since your company’s taxable profits are above the £250,000 upper limit for the small profits and Marginal Relief thresholds, the 25% main Corporation Tax rate applies, assuming the company is not subject to different rules. Therefore:

Corporation Tax = £300,000 × 25% = £75,000

So, the company’s Corporation Tax liability would be £75,000.

How to Calculate Corporation Tax?

A simplified Corporation Tax calculation can be done in the following steps.

Work out Your Company’s Accounting Profit

You need to start with the company’s accounting profit for the relevant accounting period. This is the starting point for calculating taxable profits before applying the relevant Corporation Tax adjustments.

Accounting profit reflects the company’s income and expenses for the relevant accounting period, prepared in accordance with the applicable accounting rules. However, the accounting profit is not automatically the amount on which Corporation Tax is calculated.

Make the Necessary Tax Adjustments

You need to make adjustments to the accounting profit for items that receive different treatment for tax purposes. Review the expenses already included in the accounts and make the necessary Corporation Tax adjustments. Qualifying revenue expenses may be deductible. Some expenses may need to be added back or treated differently for tax purposes.

However, not every expense is deductible. HMRC treats revenue and capital expenditure differently, and some expenses are specifically disallowed.

Claim Relevant Capital Allowances

The next step in “ how to calculate Corporation Tax” is to consider any relevant capital allowances. If you bought qualifying business assets, such as equipment, machinery or certain business vehicles, you can claim capital allowances.

Capital allowances provide tax relief for qualifying capital expenditure. So,  they can affect the taxable profit used in the Corporation Tax calculation. A balancing charge may also increase taxable profits, depending on the circumstances.

Determine Your Taxable Profits

After making the relevant tax adjustments to the company’s accounting profit, including any applicable capital allowances, losses and other reliefs, you can determine the taxable profits for Corporation Tax purposes.

Once you determine your taxable profits, consider the applicable Corporation Tax rate UK.

Apply the Relevant Tax Rate

Last but not least, use the main rate (25%) or the small profits rate (19%) depending on your profit level.

Furthermore, consider reliefs and adjustments. Check if your company is eligible for reliefs such as R&D tax credits, marginal relief, or losses from previous years.

You can use a corporation tax calculator for taxable profit calculation. It can help you estimate how much tax you owe on your taxable profits.

How Do Corporation Tax Losses Affect the Calculation?

If your company makes a trading loss, it may be possible to use that loss against profits of the same or other accounting periods or carry it forward, depending on the type of loss and the relevant Corporation Tax rules. Therefore, loss relief can affect the amount of taxable profits and Corporation Tax payable.

What Are the Corporation Tax Rates 2026/27?

Now that you understand how to calculate Corporation Tax, let’s move on to the Corporation Tax rates. Understanding the applicable rate is an important part of calculating Corporation Tax.

The corporation tax rate for 2026/27 is:

• The small profits rate is 19% for profits within the relevant small-profits limit
• The main rate is 25% for profits above £250,000

However, companies with profits between £50,000 and £250,000 may be eligible for Marginal Relief. Keep in mind that these thresholds can be reduced where the accounting period is shorter than 12 months or where the company has associated companies.

So, simply applying 19% or 25% to every company’s taxable profits may result in an incorrect Corporation Tax calculation. If your company has the Marginal Relief range, you need to calculate the appropriate relief, taking the relevant thresholds and circumstances into account.

Corporation Tax Rates and Accounting Periods

Corporation Tax rates are set by financial year, while a company’s Corporation Tax accounting period cannot be longer than 12 months. If an accounting period spans a change in Corporation Tax rates, the applicable rates may need to be apportioned across the relevant periods. The £50,000 and £250,000 thresholds can also be reduced for short accounting periods and where the company has associated companies

When Do You Need to Pay Corporation Tax?

Learning how to calculate Corporation Tax isn’t only about the steps. You also need to know when you need to pay Corporation Tax to avoid potential penalties from HMRC.

Companies with Taxable Profits of £1.5 Million or Less

For these companies, Corporation Tax is generally due 9 months and 1 day after the end of the accounting period.

Companies with Taxable Profits Above £1.5 Million

These companies may have to pay Corporation Tax in instalments under the large-company rules.

The Corporation Tax position needs particular care if you are preparing final accounts before closing a limited company. The company’s accounting period may end earlier than originally expected, and the relevant Corporation Tax accounting period and payment reference should be checked with HMRC.

You are not supposed to assume that a previous payment reference can be reused. HMRC’s online account provides the reference applicable to the relevant accounting period.

How to Pay Corporation Tax?

Another crucial part of understanding “how to calculate Corporation Tax” is learning how you can pay it.

You can pay your Corporation Tax using several payment methods, including:

• Online or telephone banking
• Debit or corporate credit card
• Direct Debit

There are other approved methods as well. You do not have to pay specifically from your company’s bank account. However, using the company’s account can help keep business and personal finances separate.

Use the correct 17-character Corporation Tax payment reference when making a payment. This reference is specific to the accounting period you are paying for. Remember that using the wrong reference could delay HMRC allocating the payment to the correct accounting period.

Final Thoughts

Calculating corporation tax involves more than applying a tax rate to accounting profit. You need to calculate taxable profits, deduct allowable expenses, consider capital allowances and other reliefs, and apply the correct Corporation Tax rate.

You must ensure you apply the correct Corporation Tax rates and allowances. If you need help with your Corporation Tax calculation, seek help from an expert. At CAIL, we have a team of experts who help calculate taxable profits, identify eligible deductions and reliefs, and prepare your Company Tax Return.

Contact us now to meet your Corporation Tax obligations accurately!
Disclaimer: This article is for general information only and does not constitute professional tax or accounting advice