Corporation tax is the tax levied on the taxable profits of UK resident companies and the UK branches of foreign companies. It replaced the old corporation tax system in the 1960s and has undergone significant reforms, most notably the reintroduction of a two-tier rate structure from April 2023. As we move through the 2026 financial year, corporation tax rates remain stable following confirmation in the Autumn Budget 2024 that the main rate would be capped at 25% for the duration of the current parliament. This predictability is welcome news for business planning, but the banded system still requires careful attention to profit thresholds and associated company rules.
Current UK Corporation Tax Rates for 2026
For financial years starting on or after 1 April 2025 and 1 April 2026, the corporation tax rates are as follows:
- Small profits rate (19%): Applies to companies with augmented profits of £50,000 or less.
- Main rate (25%): Applies to companies with augmented profits above £250,000.
- Marginal relief: Provides a tapered effective rate for companies with augmented profits between £50,001 and £250,000.
These thresholds are not fixed in stone for every business. They are divided by the number of “associated companies” (broadly, companies under common control) and adjusted pro-rata for short accounting periods. Augmented profits include your taxable profits plus any exempt franked investment income (such as dividends from other UK companies that carry a tax credit).
For a standalone company with no associated entities, the bands are straightforward. A company earning £40,000 in taxable profits pays just 19% corporation tax. Once profits exceed £250,000, the full 25% main rate kicks in across all profits. The marginal band is where many growing businesses find themselves – and where effective corporation tax rates can feel deceptively high.
How Marginal Relief Works in Practice
The government uses a mathematical formula to smooth the transition between the 19% and 25% rates. Marginal relief is calculated as:
(Upper limit – Augmented profits) × Standard fraction × (Main rate percentage)
The standard fraction is currently 3/200. In simple terms, this creates an effective marginal corporation tax rate of approximately 26.5% on profits within the £50,001–£250,000 band. While the headline main rate is 25%, the relief taper means you pay a slightly higher effective rate on the slice of profit that falls inside the band.
Example:
- A company with £150,000 taxable profits (no associated companies, no franked investment income).
- Corporation tax before relief: £150,000 × 25% = £37,500.
- Marginal relief: (£250,000 – £150,000) × (3/200) = £1,500.
- Final tax liability: £37,500 – £1,500 = £36,000.
- Effective rate: £36,000 / £150,000 = 24%.
This example illustrates why accurate forecasting is crucial. Many businesses underestimate the impact of the marginal band and are surprised when their effective corporation tax rates exceed the 25% headline figure.
Historical Context of Corporation Tax Rates
To appreciate today’s corporation tax rates, it helps to look back. From 2015 to March 2023, the UK operated a single flat rate of 19% – one of the lowest in the G7. The 2023 reform introduced the current structure to raise revenue while protecting smaller businesses. The small profits rate of 19% was reinstated specifically to support SMEs, while larger companies absorbed the 25% main rate.
The government has repeatedly stated that 25% is now the permanent ceiling. This commitment provides long-term certainty for investment decisions, capital expenditure planning, and international competitiveness. Full expensing for qualifying plant and machinery (100% first-year allowance for main-rate assets) further softens the impact of the higher rate by allowing immediate tax relief on qualifying investments.
Factors That Influence Your Effective Corporation Tax Rates
Several practical factors can push your corporation tax rates higher or lower than the headline figures:
- Associated companies – If you control multiple companies, the £50,000 and £250,000 thresholds are shared. Two associated companies each have a £25,000 small-profits threshold.
- Franked investment income – Receiving dividends from other UK companies increases augmented profits and can push you into a higher band.
- Ring-fence profits (oil and gas extraction) – These attract a higher 30% main rate plus a 19% small profits rate and supplementary charge.
- Losses and reliefs – Trading losses, R&D expenditure credits, and patent box relief can all reduce taxable profits and therefore the applicable corporation tax rates.
- Accounting period length – Short periods reduce thresholds proportionately.
Calculating and Paying Corporation Tax
You calculate corporation tax on your Company Tax Return (CT600), which must be filed within 12 months of your accounting period end. Payment is due nine months and one day after the period end for most companies, though “large” and “very large” companies pay by quarterly instalments.
Accurate bookkeeping and timely management accounts are vital. Over-estimating or under-estimating profits can lead to interest and penalties. Many businesses now use cloud accounting software integrated with HMRC’s Making Tax Digital for Corporation Tax (MTD CT) to streamline compliance.
Strategic Planning to Optimise Corporation Tax Rates
Smart tax planning can legitimately keep your effective corporation tax rates as low as possible within the rules. Common strategies include:
- Timing capital expenditure to maximise full expensing and annual investment allowance (£1 million).
- Utilising R&D tax credits or the new R&D intensive company relief.
- Reviewing director remuneration (salary vs dividends) to balance personal and corporate tax efficiency.
- Group restructuring to manage associated company thresholds.
- Claiming all available capital allowances and reliefs before finalising accounts.
At Evolve Tax, we regularly run “what-if” scenarios for clients to model different profit levels and investment decisions. This proactive approach often saves thousands compared with a “file and forget” mentality.
Why Professional Advice Matters More Than Ever
With corporation tax rates now operating on a banded system and thresholds sensitive to group structures, DIY compliance carries risk. HMRC’s increased focus on compliance checks, especially around associated companies and transfer pricing for larger groups, means errors are more likely to trigger enquiries.
Evolve Tax offers specialist corporation tax advice tailored to your industry and growth stage. Whether you need help with marginal relief calculations, international tax structuring, or simply a second opinion on your CT600, our team ensures you pay the correct amount – nothing more, nothing less.
To explore how current corporation tax rates affect your specific business situation, book a free consultation with our experts today.
Looking Ahead
The stability of corporation tax rates through 2026 and beyond is a positive signal for UK plc. The 19%/25% framework, combined with generous capital allowances, positions Britain competitively against other G7 nations. However, businesses that fail to monitor profit bands, associated company rules, or relief opportunities will continue to overpay.
Staying informed and working with trusted advisers is the best way to turn corporation tax rates from a cost centre into a strategic advantage. At Evolve Tax, we’re here to help you do exactly that – year after year.
For more info: https://evolvetax.co.uk/blog/complete-end-to-end-guide-to-international-business-setup-for-uk-entrepreneurs-2026-edition-
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