TL;DR: Corporation Tax in 2026/27
- Current Rates: 19% small profits rate (up to £50k), 25% main rate (over £250k), with marginal relief applied to profits between these thresholds.
- Payment Deadline: Your Corporation Tax bill must be paid 9 months and 1 day after your accounting year ends.
- Filing Deadline: The CT600 Company Tax Return must be filed within 12 months of your accounting year end.
- Key Reliefs: Reduce your tax bill using allowable business expenses, Capital Allowances (like Full Expensing), and R&D Tax Credits (up to 186% enhanced deduction for SMEs).
Understanding UK Corporation Tax
Corporation Tax is a tax levied on the taxable profits of limited companies and other organisations in the United Kingdom. If you operate your business as a limited company, you are legally required to calculate, report, and pay Corporation Tax to HM Revenue & Customs (HMRC) annually.
Unlike Income Tax for sole traders, there is no tax-free allowance for Corporation Tax. All taxable profits are subject to tax, making it crucial to understand the rates, deadlines, and available reliefs to optimise your company's financial position.
Corporation Tax Rates for 2026/27
The Corporation Tax rates for the 2026/27 financial year (starting 1 April 2025) remain consistent with the previous year, featuring a tiered system based on your company's taxable profits.
| Profit Threshold | Applicable Rate | Description |
|---|---|---|
| Up to £50,000 | 19% | Small Profits Rate |
| £50,001 to £250,000 | Marginal Relief | Gradual increase from 19% to 25% |
| Over £250,000 | 25% | Main Rate |
How Marginal Relief Works
If your company's profits fall between £50,000 and £250,000, you don't simply pay 25% on everything. Instead, you calculate your tax at the 25% main rate and then deduct "Marginal Relief." This mechanism ensures a smooth transition, resulting in an effective tax rate that gradually increases from 19% to 25% as your profits rise.
Visual representation of Corporation Tax rates based on profit levels.
Crucial Deadlines You Cannot Miss
One of the most common pitfalls for new limited company directors is misunderstanding the difference between the payment deadline and the filing deadline. You must pay your Corporation Tax before you are required to file your return.
Payment Deadline
9 months and 1 day after your accounting period ends.
Example: If your year-end is 31 March 2025, your payment is due by 1 January 2026.
Filing Deadline (CT600)
12 months after your accounting period ends.
Example: If your year-end is 31 March 2025, your return must be filed by 31 April 2026.
Late Filing Penalties
Missing the filing deadline incurs immediate penalties: £100 for being 1 day late, another £100 at 3 months, and an estimated tax charge plus 10% penalty at 6 months. Late payments also accrue daily interest at HMRC's current rate.
Reducing Your Bill: Allowable Deductions
You can deduct the costs of running your business from your profits before tax is calculated. The golden rule is that expenses must be incurred "wholly and exclusively" for the purposes of your trade.
Allowable Expenses
- • Director and staff salaries
- • Employer's National Insurance contributions
- • Office rent, utilities, and insurance
- • Business travel and accommodation
- • Software subscriptions (e.g., Xero, QuickBooks)
- • Professional fees (accountants, solicitors)
- • Marketing and advertising costs
Non-Allowable Expenses
- • Client entertaining (meals, events)
- • Dividends paid to shareholders
- • Fines and penalties (including HMRC fines)
- • Everyday commuting (home to regular workplace)
- • Personal expenses not related to the business
R&D Tax Credits: A Major Boost for Innovators
If your company is developing new products, processes, or services, or enhancing existing ones, you might qualify for Research and Development (R&D) tax relief. This is one of the most generous tax incentives available to UK businesses.
The SME Scheme and ERIS
For accounting periods starting before 1 April 2024, the standard SME scheme applies. However, for periods starting on or after 1 April 2024, the landscape has shifted to a merged scheme, alongside the Enhanced R&D Intensive Support (ERIS) scheme specifically for loss-making, R&D-intensive SMEs.
Under ERIS, if your company spends at least 30% of its total expenditure on qualifying R&D, you can claim a massive 186% enhanced deduction (your normal 100% deduction plus an extra 86%). If this results in a loss, you can surrender it for a payable cash credit of up to 14.5%.
R&D Compliance Warning
HMRC has significantly tightened compliance checks on R&D claims. You must now submit an Additional Information Form detailing your projects and costs before filing your CT600. Using robust accounting software to track project-specific costs is essential for a successful claim.
Capital Allowances: Deducting Asset Costs
While day-to-day running costs are deducted as revenue expenses, larger purchases like machinery, equipment, and business vehicles are treated differently. You claim tax relief on these through Capital Allowances.
| Allowance Type | What it covers | Relief Amount |
|---|---|---|
| Annual Investment Allowance (AIA) | Most plant and machinery (excluding cars) | 100% deduction up to £1 million per year |
| Full Expensing | New, unused qualifying plant and machinery | 100% first-year deduction (no upper limit) |
| First-Year Allowances | Zero-emission cars, certain energy-saving equipment | 100% deduction in the year of purchase |
| Writing Down Allowances | Assets that don't qualify for AIA or exceed the limit | 18% (main pool) or 6% (special rate pool) annually |
Director Salary vs. Dividend Strategy
As a company director, how you pay yourself significantly impacts your Corporation Tax bill. The most tax-efficient strategy usually involves a mix of a low salary and higher dividends.
Taking a Salary
A salary is an allowable business expense, meaning it reduces your company's taxable profit and therefore your Corporation Tax bill.
The Strategy: Many directors take a salary up to the Primary Threshold (£12,570 for 2026/27) to maintain National Insurance records for state pension benefits without actually paying Income Tax or employee NI.
Taking Dividends
Dividends are paid out of profits after Corporation Tax has been deducted. They are not an allowable expense.
The Strategy: While they don't reduce Corporation Tax, dividends attract lower personal tax rates than a salary and are exempt from National Insurance, making them highly efficient for extracting remaining profits.
How Accounting Software Calculates CT Provision
Manually calculating Corporation Tax, especially with marginal relief and complex capital allowances, is prone to error. Modern cloud accounting software automates this process, providing a real-time estimate of your tax liability.
- Real-time Profit Tracking: Software like Xero or FreeAgent categorises your income and expenses automatically via bank feeds, maintaining an up-to-date view of your net profit.
- Tax Rule Application: The software applies current HMRC rules, automatically disallowing non-deductible expenses (like entertaining) from the tax calculation.
- Provisioning: It calculates the estimated Corporation Tax based on the applicable rate (19%, 25%, or marginal relief) and creates a "provision" in your balance sheet, so you always know how much cash to set aside.
- Direct Filing: Some platforms, particularly those aimed at smaller businesses like FreeAgent, allow you to generate and file your CT600 directly to HMRC from within the software.
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