Corporation tax explained
The 19% and 25% rates, the Marginal Relief band in between, and how a company works out the tax on its profits.
Corporation Tax is the tax a limited company pays on its profits. For the financial year from 1 April 2026, profits of £50,000 or less are taxed at 19%, profits of £250,000 or more at 25%, and anything in between gets Marginal Relief, a taper that smooths the jump between the two rates. The company pays it on the profit it makes, separately from any tax the owners pay on what they take out.
The short version
- Corporation Tax is paid by limited companies on their taxable profits, not by sole traders.
- The small profits rate is 19% on profits up to £50,000. The main rate is 25% on profits of £250,000 or more.
- Between £50,000 and £250,000, Marginal Relief tapers the effective rate from 19% up towards 25%.
- Tax is normally due 9 months and 1 day after your accounting period ends. Every figure here is an estimate to plan with, not tax advice.
What it is and who pays
Corporation Tax is the tax that companies pay on their profits. It applies to limited companies, and to some other organisations such as clubs and co-operatives. Sole traders and ordinary partnerships do not pay it; they pay Income Tax on their profits through Self Assessment instead.
The tax is charged on taxable total profits, which is the company's trading profit plus things like investment income and chargeable gains (the profit on selling an asset), after allowable expenses are deducted. That is a different number from the cash in the bank or the money the owners draw out. Dividends paid to shareholders are not a business expense, so they do not reduce the profit the company is taxed on. The owners are then taxed separately on what they take out, which we cover in dividend tax explained.
The rates
Since 1 April 2023 there has been more than one rate. The rate your company pays depends on how much profit it makes in the financial year, which for Corporation Tax runs from 1 April to 31 March. FY2026 covers 1 April 2026 to 31 March 2027.
| Profit | Rate | What applies |
|---|---|---|
| £50,000 or less | 19% | Small profits rate |
| £50,000 to £250,000 | 19% to 25% | Main rate, reduced by Marginal Relief |
| £250,000 or more | 25% | Main rate |
The small profits rate of 19% is for companies with profits of £50,000 or less. The main rate of 25% is for companies with profits of £250,000 or more. The two thresholds, £50,000 and £250,000, are the lower and upper limits that frame the band in between.
How Marginal Relief works
Marginal Relief is the mechanism that bridges the gap. If the rate simply jumped from 19% to 25% at £50,000, a company just over the line would pay far more than one just under it. Instead, for profits between £50,000 and £250,000, you start from the full 25% main rate and then take off a reduction, so the effective rate climbs gradually as profit rises.
For a single standalone company with a 12-month accounting period, the sum is:
Corporation Tax = (25% of your profit) minus (3 ÷ 200 × (£250,000 minus your profit)).
The 3 ÷ 200 part is HMRC's standard Marginal Relief fraction. The bigger the gap between your profit and the £250,000 upper limit, the larger the relief, which is why a company nearer £50,000 keeps more of the reduction than one nearer £250,000.
Take £150,000 of profit. The main-rate charge is 25% of £150,000, which is £37,500. The relief is 3 ÷ 200 × (£250,000 − £150,000), which is £1,500. So the tax is £37,500 − £1,500 = £36,000, an effective rate of 24%. The examples below show how the effective rate moves across the band.
| Profit | Corporation Tax | Effective rate |
|---|---|---|
| £40,000 | £7,600 | 19% |
| £100,000 | £22,750 | 22.75% |
| £150,000 | £36,000 | 24% |
| £300,000 | £75,000 | 25% |
One quirk worth knowing: although the average rate at £100,000 is 22.75%, each extra pound of profit earned inside the band is effectively taxed at 26.5%. That marginal rate is higher than the headline 25%, which is what pulls the average up towards the main rate as profit grows. To see the tax and effective rate on your own figure, use the corporation tax calculator.
Associated companies
The £50,000 and £250,000 limits assume one company. If a company is controlled by the same people as one or more others, those count as associated companies, and the two limits are divided by the total number of associated companies. For example, two associated companies share the limits in half, so each has a lower limit of £25,000 and an upper limit of £125,000. That means the main rate and Marginal Relief band start at lower profit levels for each company.
The limits are also reduced proportionately if your accounting period is shorter than 12 months. Our calculator assumes a single standalone company with a full 12-month period and does not model associated companies, so if your company has associates, treat the result as a starting point and check the figure with HMRC or an accountant.
How and when you pay
A company works out its own Corporation Tax; HMRC does not send a bill. You report the profit and the tax on a Company Tax Return, the CT600, and you must register for Corporation Tax with HMRC when the company starts trading.
For most companies, the tax is due 9 months and 1 day after the end of the accounting period (usually your company's financial year). The CT600 is filed separately and is due within 12 months of the period end, so the payment deadline falls first, before the return is due. Very large companies, with profits in the millions, pay in quarterly instalments instead. Missing a deadline can lead to penalties and interest, so it is worth setting the dates aside as soon as the period ends.
Common questions
- What is the rate of corporation tax in 2026?
- For the financial year from 1 April 2026 there are two headline rates. A profit of £50,000 or less is taxed at the 19% small profits rate, while a profit of £250,000 or more is taxed at the 25% main rate. Anything in between gets Marginal Relief, which tapers the effective rate from 19% up to 25% as profits rise.
- How is Marginal Relief calculated?
- For a standalone company with a 12-month accounting period, you charge the full main rate of 25% on all the profit, then deduct Marginal Relief. The relief is 3 ÷ 200 of the difference between the upper limit of £250,000 and your profit. On £150,000 of profit that is 3 ÷ 200 × (£250,000 − £150,000), which is £1,500, so the tax is £37,500 minus £1,500, or £36,000.
- What counts as profit for corporation tax?
- Corporation Tax is charged on a company's taxable total profits: its trading profit, plus investment income and chargeable gains, after deducting allowable expenses. It is not the same as the money in the bank or the cash the owners take out. Dividends paid to shareholders are not an expense and do not reduce the profit the company is taxed on.
- When do I have to pay corporation tax?
- For most companies, Corporation Tax is due 9 months and 1 day after the end of the accounting period. The Company Tax Return (the CT600) is filed separately and is due within 12 months of the period end, so the payment deadline comes first. Very large companies pay in quarterly instalments instead.
- Do limited companies pay tax on dividends?
- No. A company pays Corporation Tax on its profit, then dividends are paid to shareholders out of what is left. The dividend is taxed in the shareholder's own hands, not the company's. How that works is covered in our guide to dividend tax.
- What is the effective rate between £50,000 and £250,000?
- It sits between 19% and 25% and rises as profit rises, because Marginal Relief shrinks as profit approaches £250,000. At £100,000 the effective rate is 22.75%. The profit in the band itself is effectively taxed at 26.5%, which is why the average rate keeps climbing towards the 25% main rate.
- Are these figures the tax I will actually owe?
- They are estimates to help you plan, not tax advice. They assume a single standalone company with a 12-month accounting period and no associated companies. Reliefs, allowances and your accounting period can change the figure. Confirm your position with HMRC or an accountant.
About this article
Written by the calcd team. We build UK money calculators and explain the numbers behind them in plain English. We checked the rates, limits and Marginal Relief fraction in this article against gov.uk and HMRC, including the Corporation Tax rates and allowances guidance and the HMRC guidance on Marginal Relief. The figures are for FY2026, the financial year from 1 April 2026 to 31 March 2027, and assume a single standalone company with a 12-month accounting period and no associated companies. They are estimates to help you plan, not tax advice. Confirm your own position with HMRC or a qualified accountant. If you charge VAT as well, see how VAT works. Last updated June 2026.