Corporation Tax for a limited company in the UK is currently between 19% and 25%, depending on how much taxable profit your business makes. If your company earns profits of £50,000 or less, you usually pay 19%.
If profits exceed £250,000, the main Corporation Tax rate is 25%. Businesses earning between those thresholds may qualify for Marginal Relief, which gradually increases the effective rate instead of applying the full 25% immediately.
Understanding how much Corporation Tax for a limited company applies to your business is important because it affects cash flow, financial planning, and compliance with HMRC rules.
Key points you should know:
- Small profits rate: 19%
- Main Corporation Tax rate: 25%
- Marginal Relief may reduce your effective rate
- Tax applies to profits, not total turnover
- Limited companies must register with HMRC within 3 months of trading
What Is Corporation Tax for a Limited Company?
Corporation Tax is a tax your limited company pays on its taxable profits. In the UK, HMRC charges Corporation Tax on profits generated through business trading, investments, and chargeable gains from selling company assets. Unlike Income Tax, Corporation Tax applies specifically to companies rather than individuals.
If you operate a limited company, you are responsible for calculating how much tax is owed and ensuring payments are made on time.
HMRC does not usually send a Corporation Tax bill automatically, which means accurate bookkeeping and financial records are essential throughout the accounting year.
Taxable profits can include:
- Income from selling products or services
- Investment income
- Profits from selling equipment, property, or other assets
Government guidance explains that “limited companies may be able to deduct some of the costs of running a business when calculating taxable profit for Corporation Tax.” This is especially important because allowable expenses can reduce your final tax bill legally and efficiently.
Corporation Tax rules also depend on accounting periods, company structure, and associated businesses, so understanding the basics early can help you avoid filing mistakes later.
How Much Is Corporation Tax for a Limited Company in 2025/26?
For the 2025/26 tax year, the amount of Corporation Tax your limited company pays depends on your taxable profits. Since April 2023, the UK no longer uses a single flat Corporation Tax rate for all businesses. Instead, companies are taxed using a tiered structure based on profit thresholds.
If your company earns smaller profits, you continue to benefit from the lower 19% small profits rate. Larger businesses with profits above £250,000 pay the full 25% main rate. Companies earning between these amounts may qualify for Marginal Relief, which gradually increases the effective tax rate.
| Taxable Profit | Corporation Tax Rate |
| Up to £50,000 | 19% |
| £50,001 to £250,000 | 25% with Marginal Relief |
| Over £250,000 | 25% |
The government confirmed that “companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief.” This system was introduced to create a gradual increase rather than a sudden jump in tax liability.
If your business owns associated companies, the thresholds reduce proportionally. For example, if you control two associated companies, the lower threshold may reduce from £50,000 to £25,000.
It is also important to remember that Corporation Tax is charged on profits after allowable expenses, not on your total sales or revenue. Careful expense tracking can therefore significantly affect your overall tax position.
How Does Marginal Relief Work for Corporation Tax?
Marginal Relief helps limited companies avoid a sudden increase in Corporation Tax when profits rise above the small profits threshold.
Instead of moving directly from 19% to the full 25% rate, eligible businesses receive a gradual transition between the two rates.
This system mainly benefits growing companies whose profits fall between £50,000 and £250,000. Understanding how Marginal Relief works can help you estimate future tax liabilities more accurately and improve financial planning decisions.
What Is Marginal Relief and Why Does It Matter?
Marginal Relief reduces the effective Corporation Tax rate for companies earning profits between the lower and upper thresholds. While the main rate technically applies, relief is deducted to lower the overall amount owed.
This matters because businesses in the middle profit range avoid an immediate jump to the full 25% rate. Instead, the tax burden increases gradually as profits rise.
The government guidance explains:
“Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief.”
For many UK businesses, this provides more predictable financial management during periods of growth.
Key points include:
- Applies to profits between £50,000 and £250,000
- Reduces the effective Corporation Tax rate
- Helps smaller growing businesses manage tax costs
- Calculations depend on accounting periods and associated companies
For example, if your company makes £100,000 in taxable profit, your effective Corporation Tax rate may fall somewhere between 19% and 25% after relief is applied.
How Are Associated Companies Treated?
Associated companies can significantly affect your Marginal Relief thresholds. HMRC treats companies under common control as associated businesses, which means the profit limits are divided between them.
If you own or control multiple companies, the £50,000 and £250,000 thresholds are reduced proportionally.
For example:
- One company: thresholds remain £50,000 and £250,000
- Two associated companies: thresholds become £25,000 and £125,000 each
- Three associated companies: thresholds reduce further
A business finance adviser quoted in competitor guidance explained:
“For those with more than one limited company, your companies are known as associates. The thresholds of £50,000 and £250,000 are divided by the number of associated companies you have.”
This rule prevents larger business groups from splitting profits across multiple companies simply to access lower tax rates.
If you are unsure whether your companies qualify as associated businesses, professional accounting advice can help clarify your position and avoid calculation errors.
How Can You Estimate Your Corporation Tax Liability?
Estimating your Corporation Tax liability starts with calculating your taxable profits accurately. This includes subtracting allowable expenses, reliefs, and deductions from your total business income.
Once taxable profit is established, you can determine which tax band applies.
A simple approach includes:
- Calculate total company income
- Deduct allowable business expenses
- Apply relevant tax reliefs
- Identify your Corporation Tax threshold
- Calculate tax owed or Marginal Relief eligibility
HMRC also provides an online Marginal Relief calculator to help businesses estimate liabilities more accurately.
One accountant interviewed in a business tax discussion said:
“Many directors underestimate the importance of forecasting Corporation Tax during the year. Waiting until the filing deadline can create unexpected cash flow pressure.”
Regular bookkeeping and quarterly financial reviews can make tax planning easier and reduce surprises at year-end. If your profits fluctuate regularly, forecasting early can help you set aside the correct amount for Corporation Tax payments.
What Profits Does a Limited Company Pay Corporation Tax On?
A limited company pays Corporation Tax on taxable profits rather than total turnover. This distinction is important because your company may generate significant revenue while still reducing taxable profit through allowable expenses and reliefs.
Taxable profits usually include several income categories connected to business activity and asset ownership.
Corporation Tax commonly applies to:
- Trading profits from selling goods or services
- Investment income
- Property income owned by the company
- Chargeable gains from selling business assets
- Overseas income if your company is UK resident
For example, if your business earns £120,000 in sales but spends £45,000 on operational costs, salaries, software, and insurance, Corporation Tax is generally calculated on the remaining profit rather than the full turnover figure.
Government guidance also explains that chargeable gains may apply when assets are sold for more than their original value. This can include:
- Commercial property
- Company vehicles
- Equipment and machinery
- Shares or investments
It is important to separate business and personal finances carefully. HMRC expects companies to maintain detailed records supporting all income and expenses included within tax calculations.
If your company makes a financial loss during the accounting period, you may be able to offset those losses against future profits. This can help reduce future Corporation Tax liabilities and improve cash flow stability for growing businesses.
Which Business Expenses Can Reduce Your Corporation Tax Bill?
Reducing your Corporation Tax bill legally often starts with understanding which business expenses qualify as allowable deductions.
HMRC permits limited companies to deduct certain operational costs before calculating taxable profit, helping businesses lower their overall Corporation Tax liability.
However, not every business cost qualifies automatically. The expense must usually be incurred wholly and exclusively for business purposes.
Understanding the difference between revenue expenses, capital expenses, and disallowed costs is essential for accurate reporting and compliance.
What Are Allowable Revenue Expenses?
Revenue expenses are the everyday operational costs involved in running your business. These are usually recurring expenses necessary for generating company income and maintaining normal operations.
Common allowable revenue expenses include:
- Office rent and utilities
- Staff salaries and pensions
- Accounting and legal fees
- Business insurance
- Marketing and advertising
- Software subscriptions
- Business travel costs
- Office supplies and equipment repairs
HMRC guidance explains that revenue expenses can normally be deducted when calculating taxable profits if they are incurred for genuine business purposes.
For example, paying an accountant to prepare annual company accounts is generally treated as a revenue expense because it directly relates to running the business.
Many business owners also claim travel and accommodation costs for work-related trips, provided personal travel is excluded from the claim.
What Are Capital Expenses?
Capital expenses relate to assets your business purchases for long-term use rather than day-to-day operations. These expenses usually provide value to the business over several years.
Examples of capital expenses include:
- Buying machinery
- Purchasing company vehicles
- Acquiring office property
- Installing long-term IT systems
- Purchasing business equipment
Although capital expenses cannot usually be deducted directly from taxable profits, businesses may claim capital allowances instead. These allowances help reduce the tax impact over time.
Government guidance states:
“Capital expenses commonly include the costs to buy, sell or improve assets that the company uses over a long time.”
For example, if your company buys a delivery van or commercial server, you may qualify for capital allowances depending on how the asset is used.
Which Expenses Are Not Allowed?
Some business expenses are specifically disallowed by HMRC and cannot reduce Corporation Tax liabilities.
Examples of disallowed expenses include:
- Client entertainment
- Personal expenses
- Non-business purchases
- Fines and penalties
- Political donations
If an expense contains both business and personal use, only the business portion may qualify.
A common mistake occurs when directors attempt to claim personal meals, holidays, or mixed-use costs without separating personal benefit from business activity.
Keeping organised receipts, invoices, and accounting records helps support your claims if HMRC requests evidence later. Many accountants recommend reviewing expenses regularly rather than waiting until year-end to avoid reporting errors and missed deductions.
What Allowances and Corporation Tax Reliefs Can You Claim?
Limited companies may qualify for several allowances and Corporation Tax reliefs that help reduce taxable profits and lower the amount owed to HMRC. These reliefs are designed to support business investment, innovation, and long-term growth.
One of the most common forms of tax support is capital allowances. These allow businesses to claim tax relief when purchasing qualifying assets used within the company.
Common claimable areas include:
- Machinery and equipment
- Company vehicles
- Office technology
- Business tools and infrastructure
Some companies may also qualify for specialised relief schemes depending on their activities.
Additional Corporation Tax reliefs can include:
- Research and Development (R&D) tax relief
- Patent Box relief
- Creative industry tax reliefs
- Trading loss relief
- Terminal loss relief
- Property income loss relief
Government guidance explains that “a limited company may be able to claim allowances and reliefs to reduce a tax bill.” However, eligibility depends on the nature of the business and supporting evidence provided during tax filings.
For example, technology companies investing heavily in innovation may benefit significantly from R&D relief. Similarly, film, gaming, and television businesses may qualify for creative sector tax reliefs.
If your company makes losses during difficult trading periods, some losses can often be carried forward against future profits, helping reduce future Corporation Tax obligations and improving financial flexibility.
How Do You Register for Corporation Tax in the UK?
Registering for Corporation Tax is one of the first tax responsibilities you face after setting up a limited company in the UK. HMRC requires businesses to register promptly once trading activities begin, even if the company is not yet generating significant profits.
Failing to register within the required timeframe may lead to penalties or compliance issues later. The registration process itself is relatively straightforward, but you must provide accurate company details and understand your filing responsibilities from the beginning.
When Must You Register for Corporation Tax?
You must usually register for Corporation Tax within three months of starting business activity. HMRC considers a company active when it begins trading, advertising, employing staff, buying goods for resale, or generating income.
Many businesses complete registration automatically while incorporating through Companies House. However, some companies still need to register separately using HMRC’s online services.
Typical signs your company has started trading include:
- Selling products or services
- Signing contracts
- Receiving income
- Paying employees
- Marketing your business actively
Competitor guidance clearly explains:
“You MUST register for Corporation Tax within three months of starting your limited company.”
Even dormant companies may need to inform HMRC about their status to avoid unnecessary tax notices or penalties.
What Information Does HMRC Need?
When registering for Corporation Tax, HMRC requires several important details about your business structure and trading activity.
You will usually need:
- Company registration number
- Unique Taxpayer Reference (UTR)
- Business start date
- Registered office address
- Nature of business activities
- Accounting period details
Most businesses complete registration through the Government Gateway portal. Once logged in, you can connect your company tax account and submit the required information online.
Accurate accounting dates are particularly important because they determine your Corporation Tax filing deadlines and payment schedules later.
If you use an accountant or company formation agent, they may handle this process on your behalf.
What Happens After Registration?
After registration is complete, HMRC will confirm your Corporation Tax obligations and explain upcoming deadlines. Your company will then become responsible for filing annual Company Tax Returns, usually using the CT600 form.
Important ongoing responsibilities include:
- Preparing annual accounts
- Filing Corporation Tax returns
- Paying Corporation Tax on time
- Keeping detailed accounting records
- Reporting allowable expenses accurately
Even if your company makes no profit or records a financial loss, filing obligations may still apply.
Many directors assume HMRC automatically calculates Corporation Tax bills, but businesses are generally responsible for self-assessment and payment calculations.
Using accounting software or working with an accountant can make compliance easier, especially as your business grows. Regular bookkeeping also reduces the risk of missing deadlines or underestimating future Corporation Tax liabilities.
When Do You Need to Pay Corporation Tax?
Corporation Tax payment deadlines depend on your company’s accounting period and taxable profits. Most limited companies with profits below £1.5 million must pay Corporation Tax nine months and one day after the end of their accounting period.
For example, if your accounting year ends on 31 March, your payment deadline is usually 1 January the following year.
Larger companies with profits above £1.5 million may need to pay in instalments rather than a single annual payment. HMRC applies separate rules for businesses with significantly higher profits, especially large corporate groups.
It is important to prepare for Corporation Tax payments in advance because late payments may result in:
- Interest charges
- Penalties
- Additional compliance reviews
Some businesses mistakenly confuse filing deadlines with payment deadlines. In reality, Corporation Tax is normally paid before the Company Tax Return submission deadline.
Government guidance also confirms that HMRC may pay interest on early payments in some situations. Careful cash flow planning throughout the year can therefore help businesses avoid financial pressure when Corporation Tax becomes due.
How Can You Pay Corporation Tax to HMRC?
HMRC allows businesses to pay Corporation Tax using several electronic payment methods. Companies cannot pay by post, so payments must be made online or through approved banking services.
Popular payment options include:
- Faster Payments
- CHAPS
- Bacs transfers
- Direct Debit
- Online banking
- Debit or corporate credit cards
Payment times vary depending on the method used. Faster Payments and CHAPS are usually processed the same day or next working day, while Bacs and Direct Debit can take longer.
Businesses should also plan around weekends and bank holidays to avoid late payment penalties. Many accountants recommend setting aside Corporation Tax funds monthly to make payments easier to manage. Keeping payment confirmations is also important for HMRC records.
What Happens If You Cannot Pay Your Corporation Tax Bill?
If your business cannot pay its Corporation Tax bill on time, contact HMRC as soon as possible. Ignoring the issue can lead to interest charges, penalties, and further recovery action.
HMRC may offer a “Time to Pay” arrangement, allowing businesses to spread payments over time if they can show genuine temporary financial difficulty.
Possible consequences of late payment include:
- Interest charges
- Late payment penalties
- Cash flow pressure
- Increased HMRC scrutiny
HMRC is more likely to approve payment plans when businesses communicate early, provide realistic repayment proposals, and remain compliant. Many companies also seek advice from accountants to manage repayment discussions and avoid further financial pressure.
How Has Corporation Tax Changed in Recent Years?
Corporation Tax in the UK changed significantly from April 2023 onwards. Before this change, most limited companies paid a flat 19% Corporation Tax rate regardless of profit size. However, the government later introduced a tiered structure designed to increase tax contributions from larger businesses while protecting smaller companies.
The Spring Budget 2021 announced the increase to the main Corporation Tax rate of 25% for companies with profits above £250,000.
The updated structure now includes:
- 19% small profits rate
- 25% main Corporation Tax rate
- Marginal Relief for mid-range profits
Government guidance explains that “from 1 April 2023, there is no longer a single Corporation Tax rate for non-ring fence profits.”
These changes were introduced partly to increase public revenue while maintaining lower rates for smaller businesses and startups. However, many business owners now pay closer attention to profit forecasting and tax planning because crossing profit thresholds can affect cash flow and investment decisions more directly than under the previous flat-rate system.
How Can You Legally Reduce Your Corporation Tax Bill?
Reducing Corporation Tax legally involves good financial planning and claiming all available allowances and reliefs correctly. Many limited companies reduce their tax bill by keeping accurate records and ensuring all eligible business expenses are claimed.
Common tax-saving strategies include:
- Claiming allowable business expenses
- Using capital allowances
- Making director pension contributions
- Claiming R&D tax relief
- Carrying forward trading losses
- Timing major business purchases carefully
Businesses should ensure all expenses are genuinely business-related, as HMRC requires a clear separation between personal and company spending. Working with an accountant can also help identify missed deductions and maintain compliance with UK tax rules.
What Are the Most Common Corporation Tax Mistakes Limited Companies Make?
Many limited companies make common Corporation Tax mistakes that can lead to penalties, unexpected tax bills, or HMRC compliance issues. These problems often happen because directors misunderstand deadlines, expense rules, or reporting requirements.
Common mistakes include:
- Missing filing or payment deadlines
- Claiming disallowed expenses
- Poor bookkeeping
- Forgetting to register within 3 months
- Miscalculating Marginal Relief
- Ignoring associated company rules
- Underestimating taxable profits
Many businesses also confuse turnover with taxable profit, leading to inaccurate tax planning. Keeping organised records, reviewing finances regularly, and seeking professional accounting advice can help avoid costly mistakes and improve compliance.
Conclusion
Understanding how much Corporation Tax for a limited company applies to your business is essential for managing cash flow, staying compliant, and planning future growth effectively.
In the UK, Corporation Tax rates currently range from 19% to 25%, depending on your taxable profits and eligibility for Marginal Relief.
While the rules may initially appear complex, the system becomes much easier to manage when you understand taxable profits, allowable expenses, payment deadlines, and available reliefs. Keeping accurate records and monitoring profits regularly can also help you avoid penalties and unexpected tax bills.
For many limited companies, careful planning can reduce Corporation Tax legally through allowances, reliefs, and proper expense management.
If your business structure or profits become more complicated, professional accounting advice can provide additional clarity and reassurance.
Staying informed about HMRC rules and upcoming tax changes will help your company remain financially prepared and compliant long term.
FAQs
Do dormant companies need to pay Corporation Tax?
Dormant companies usually do not pay Corporation Tax if they have no trading activity. However, HMRC may still require confirmation that the company remains dormant.
Can you pay Corporation Tax in instalments?
Yes. Companies with larger profits may need to pay Corporation Tax through instalments instead of a single annual payment.
Is Corporation Tax different from Income Tax?
Yes. Corporation Tax applies to company profits, while Income Tax applies to personal earnings received by individuals.
What happens if your company makes a loss?
Your company may be able to carry losses forward and offset them against future profits to reduce future Corporation Tax.
Can accountants reduce Corporation Tax legally?
Accountants can help identify allowable expenses, reliefs, and tax planning opportunities that reduce Corporation Tax legally.
Do startups pay Corporation Tax immediately?
Startups must usually register for Corporation Tax within three months of beginning business activity, even if profits are low initially.
Is Corporation Tax calculated before or after salaries?
Corporation Tax is generally calculated after deducting allowable business expenses, including employee salaries.
Can you amend a Corporation Tax return after filing?
Yes. Companies can normally amend a Corporation Tax return within the permitted amendment period if corrections are needed.