UK Corporation Tax Calculator 2025/26
Calculate your company’s Corporation Tax liability with Marginal Relief, associated companies adjustment, and payment deadlines
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UK Corporation Tax Calculator: Calculate Your Company Tax Bill for 2025/26
Corporation Tax is the primary tax paid by limited companies operating in the United Kingdom on their taxable profits. Understanding how to calculate your Corporation Tax liability is essential for effective business planning and ensuring compliance with HM Revenue and Customs (HMRC) requirements. This comprehensive guide explains the current Corporation Tax rates for 2025/26, how Marginal Relief works, the impact of associated companies, and everything you need to know to accurately calculate your company’s tax bill.
The UK Corporation Tax system underwent significant changes in April 2023, introducing a two-tier rate structure that remains in effect for the 2025/26 tax year. Companies now pay between 19% and 25% depending on their profit levels, with Marginal Relief available for those in the middle band. Whether you are a small business owner, company director, or financial professional, understanding these calculations can help you plan effectively and potentially reduce your tax burden through legitimate means.
Understanding Corporation Tax Rates for 2025/26
The Corporation Tax rates for the 2025/26 tax year in the United Kingdom are structured into three bands based on your company’s taxable profits. These rates have remained unchanged since their introduction on 1 April 2023 and were confirmed in the Autumn Budget 2024 to continue for the 2025/26 period.
The Small Profits Rate of 19% applies to companies with annual taxable profits of £50,000 or less. This reduced rate is designed to support smaller enterprises by minimising their tax burden and encouraging business growth. If your company falls entirely within this threshold, the calculation is straightforward: simply multiply your taxable profits by 19%.
The Main Rate of 25% applies to companies with taxable profits exceeding £250,000. Companies at this level pay the full rate on all their profits without any relief. This rate aligns the UK more closely with other major economies and represents the standard corporate tax rate for larger profitable businesses.
For companies with profits between £50,001 and £250,000, the situation is more nuanced. These companies are technically taxed at the 25% main rate but can claim Marginal Relief, which reduces their effective tax rate to somewhere between 19% and 25%. This graduated approach prevents a sudden jump in tax liability as profits grow past the £50,000 threshold.
How Marginal Relief Works in Practice
Marginal Relief is a tax reduction mechanism that smooths the transition between the Small Profits Rate and the Main Rate. Without this relief, a company earning £50,001 would suddenly face a significantly higher tax bill compared to one earning £50,000. Marginal Relief addresses this cliff-edge effect by gradually increasing the effective tax rate as profits rise within the band.
The calculation works by first applying the 25% main rate to all profits, then deducting the Marginal Relief amount. The relief is calculated using the formula: (£250,000 minus Taxable Profits) multiplied by 3/200. This fraction is derived from the difference between the 25% main rate and the 19% small profits rate (6%), divided by the width of the marginal band (£200,000), giving 6%/200,000 = 3/200.
Consider a practical example: if your company has taxable profits of £150,000, you would first calculate tax at the 25% rate (£37,500). Then calculate the Marginal Relief: (£250,000 minus £150,000) multiplied by 3/200 equals £1,500. Your final Corporation Tax bill would be £37,500 minus £1,500 = £36,000, giving an effective rate of 24%.
For every additional pound earned within the marginal band (£50,000 to £250,000), the effective tax rate on that additional pound is actually 26.5%, not 25%. This occurs because increasing profits also reduces the Marginal Relief available. Understanding this can be crucial for tax planning decisions near these thresholds.
Associated Companies and Threshold Adjustments
One of the most important factors affecting Corporation Tax calculations is whether your company has associated companies. Associated companies share the threshold limits, which can significantly increase your effective tax rate by pushing your company into a higher band more quickly.
Two companies are considered associated if one controls the other, or if both are under the control of the same person or persons. Control is broadly defined and includes not just share ownership but also rights to income, voting power, and entitlement to assets. Even indirect holdings through family members or other entities can create an association under HMRC’s attribution rules.
When associated companies exist, the thresholds are divided by the total number of associated companies (including the company itself). For example, if you control two companies, the lower limit becomes £25,000 (£50,000 divided by 2) and the upper limit becomes £125,000 (£250,000 divided by 2) for each company. This means a company with £80,000 profits that has one associated company would no longer qualify for the Small Profits Rate.
Short Accounting Periods and Pro-Rata Calculations
When a company has an accounting period shorter than 12 months, the profit thresholds must be adjusted proportionally. This commonly occurs when a company is newly formed, changes its accounting reference date, or ceases trading. The adjustment ensures fair treatment regardless of the accounting period length.
To calculate the adjusted thresholds, multiply the standard limits by the number of months in the accounting period divided by 12. For instance, a company with a 6-month accounting period would have its lower limit reduced to £25,000 (£50,000 multiplied by 6/12) and its upper limit reduced to £125,000 (£250,000 multiplied by 6/12).
If a company has both associated companies and a short accounting period, both adjustments must be applied. First divide the thresholds by the number of associated companies, then multiply by the fraction of the year. This can result in significantly lower thresholds, potentially pushing even modest profits into higher tax bands.
Ring-Fenced Profits: Oil and Gas Companies
Companies engaged in oil and gas extraction or oil rights in the United Kingdom or the UK Continental Shelf face a different Corporation Tax regime known as ring-fencing. These ring-fence companies are subject to separate rules and rates designed to capture a fair share of the profits from UK natural resources.
Ring-fence profits are subject to two additional taxes beyond standard Corporation Tax: the Supplementary Charge (currently 10%) and the Energy Profits Levy (currently 35%). Combined with the 25% main rate, this can result in a total tax rate of 70% on ring-fence profits. However, investment allowances and other reliefs may reduce this effective rate substantially.
The thresholds for ring-fence companies differ from standard Corporation Tax. For periods up to 31 March 2023, Marginal Relief was available on ring-fence profits between £300,000 and £1.5 million. From 1 April 2023, the standard thresholds of £50,000 and £250,000 apply to ring-fence profits as well.
Close Investment-Holding Companies
A Close Investment-Holding Company (CIC) is a specific type of close company that does not qualify as a trading company or member of a trading group. These companies face the main 25% rate on all their profits regardless of the amount, with no access to the Small Profits Rate or Marginal Relief. This rule prevents individuals from using investment holding companies to shelter investment income at lower tax rates.
A close company is generally one controlled by five or fewer participators (shareholders or loan creditors) or by any number of directors. Most private limited companies fall into this category. Whether a close company is a CIC depends on its activities: if it exists mainly to hold investments rather than conduct a trade, it will likely be classified as a Close Investment-Holding Company.
Companies should carefully consider their status when planning for Corporation Tax. If a company has both trading and investment activities, the investment activities may need to be separated or the company may need to demonstrate that its primary purpose is trading to avoid CIC status.
Patent Box: Reduced Rate on Qualifying Income
The Patent Box scheme allows companies to apply a 10% Corporation Tax rate to profits earned from patented inventions and certain other intellectual property. This significant reduction from the standard rates incentivises research and development within the UK and encourages companies to register and commercialise patents.
To qualify for Patent Box relief, a company must own or exclusively license qualifying patents and must have contributed to the development of the patented invention. The qualifying income includes royalties from patents, income from selling patented products, and income from selling goods that incorporate patented items.
The Patent Box calculation involves a complex formula to determine what proportion of profits qualifies for the reduced rate. Companies must maintain detailed records of their research and development activities and the income streams attributable to patented technology. The relief can be claimed alongside other tax incentives but must be calculated according to HMRC’s specific requirements.
Beyond Patent Box, companies investing in qualifying research and development can claim additional tax relief. For the 2025/26 tax year, the merged scheme provides up to 20% relief for most companies. Research and Development Expenditure Credit (RDEC) rates and rules have been consolidated into a single scheme from April 2024, simplifying claims for most businesses.
Payment Deadlines and Quarterly Instalments
Understanding when to pay Corporation Tax is as important as knowing how much to pay. Most companies must pay their Corporation Tax bill within nine months and one day after the end of their accounting period. For example, if your company’s accounting year ends on 31 March 2026, your payment deadline would be 1 January 2027.
Large companies face different requirements. A company is considered large if it has taxable profits of at least £1.5 million (adjusted for associated companies and short accounting periods) and a Corporation Tax liability exceeding £10,000. Large companies must pay their Corporation Tax in quarterly instalments rather than in a single payment.
Very large companies with profits exceeding £20 million must begin paying instalments even earlier, starting from the third month of the accounting period. The instalment dates for very large companies are the 14th day of months 3, 6, 9, and 12 of the accounting period. Regular large companies pay on the 14th day of months 7, 10, 13 (one month after year-end), and 16 (four months after year-end).
Filing Requirements and Deadlines
Every company registered in the UK must file a Corporation Tax Return (CT600) with HMRC, even if it has no tax to pay. The filing deadline is 12 months after the end of the accounting period. This is separate from and longer than the payment deadline of nine months and one day.
The Corporation Tax Return must be filed electronically through HMRC’s online services or approved commercial software. Along with the CT600 form, companies must submit their statutory accounts and tax computations. These supporting documents provide HMRC with the detail needed to verify the tax calculation.
Late filing incurs automatic penalties: £100 for returns filed up to 3 months late, increasing to £200 for returns filed 3 to 6 months late. Additional penalties of 10% of the unpaid tax apply after 6 months, and a further 10% after 12 months. These penalties are in addition to interest charges on any late payment of the tax itself.
Calculating Taxable Profits
Taxable profits for Corporation Tax purposes are not the same as accounting profits shown in the financial statements. Various adjustments must be made to arrive at the figure on which tax is calculated. Understanding these adjustments is essential for accurate tax planning and compliance.
Disallowable expenses are costs that appear in the accounts but cannot be deducted for tax purposes. Common examples include entertaining clients, depreciation (replaced by capital allowances), certain legal and professional fees, and donations to non-qualifying charities. These must be added back to accounting profits when calculating taxable profits.
Capital allowances replace accounting depreciation for tax purposes. The Annual Investment Allowance provides 100% relief on qualifying plant and machinery expenditure up to £1 million per year. Full expensing, introduced in April 2023 and made permanent in the 2024 Budget, allows unlimited 100% deductions for qualifying main pool plant and machinery expenditure.
Trading Losses and Loss Relief
Companies that incur trading losses have several options for obtaining tax relief. Understanding these options allows for optimal tax planning and can significantly affect cash flow, particularly for new or growing businesses experiencing fluctuating profitability.
Current year loss relief allows a company to set trading losses against total profits of the same accounting period. This includes not only trading income but also investment income and chargeable gains. Any remaining loss can then be carried back or carried forward.
Loss carry-back permits losses to be set against profits of the previous 12 months (or 36 months for losses incurred in accounting periods ending between 1 April 2020 and 31 March 2022 due to temporary COVID-19 measures). This can generate a Corporation Tax refund, improving cash flow. Losses can also be carried forward indefinitely against future trading profits of the same trade, though this may be restricted for companies with substantial profits.
Large groups with net interest expense exceeding £2 million may be subject to the Corporate Interest Restriction (CIR). This limits the tax deduction for interest payments, potentially increasing taxable profits. Groups should plan their financing structures carefully to manage CIR exposure.
Chargeable Gains and Capital Disposals
When a company sells or disposes of a capital asset for more than it originally cost, the profit is a chargeable gain subject to Corporation Tax. Unlike individuals, companies do not have a separate Capital Gains Tax; instead, chargeable gains are included in taxable profits and taxed at the standard Corporation Tax rates.
Indexation allowance, which previously allowed companies to reduce gains by accounting for inflation, was frozen from 1 January 2018. This means companies can no longer increase the base cost of assets for inflation that occurred after this date, potentially resulting in higher taxable gains on long-held assets.
The Substantial Shareholding Exemption (SSE) can exempt gains on the disposal of shares in subsidiary companies if certain conditions are met. Generally, if a company has held at least 10% of another trading company for at least 12 months, any gain on selling those shares can be exempt from Corporation Tax. This is particularly relevant for corporate restructuring and exit planning.
Dividends and Distributions
Dividends received by UK companies from other UK companies are generally exempt from Corporation Tax. This exemption prevents double taxation when profits flow through corporate structures. The exemption applies automatically to most dividends received, with no claim required.
Dividends paid by a company are not tax-deductible; they are distributions of after-tax profits. When planning remuneration strategies, directors must consider the combined tax position of the company and the individual recipient. In some cases, paying a bonus (which is tax-deductible for the company) may be more efficient than paying dividends.
Anti-avoidance rules exist to prevent manipulation of dividend exemptions. Distributions in respect of non-commercial securities, certain shares connected with loans, and distributions designed primarily for tax avoidance may not qualify for exemption. Companies should ensure their dividend arrangements have genuine commercial substance.
Group Relief and Consortium Relief
Companies within a 75% group can surrender trading losses to other group members through Group Relief. This allows profitable companies to reduce their tax bills by utilising losses from other group members, optimising the overall tax position of the corporate structure.
A 75% group relationship exists when one company owns at least 75% of the ordinary share capital of another, and is entitled to at least 75% of profits available for distribution and assets on winding up. These conditions must be met throughout the periods in question for Group Relief to be available.
Consortium Relief operates similarly but applies where several companies jointly own a trading company or holding company. Each consortium member can surrender or claim losses proportional to their ownership percentage. This provides flexibility for joint venture structures and other multi-party business arrangements.
Transfer Pricing Rules
Transfer pricing rules require that transactions between connected parties be conducted at arm’s length prices, as if the parties were independent. These rules prevent profit shifting through artificial pricing arrangements between related companies, particularly in international structures.
UK transfer pricing rules apply to transactions between UK companies and their overseas associates, and in some cases between UK companies within the same group. Companies must document their transfer pricing policies and demonstrate that prices are commercially justifiable.
Small and medium-sized enterprises are generally exempt from transfer pricing rules unless they have transactions with entities in countries that do not have a double taxation agreement with the UK. However, SMEs can still elect to apply transfer pricing rules if it benefits them, for example, to reduce overseas tax liabilities.
Multinational groups with consolidated revenues exceeding EUR 750 million must file Country-by-Country Reports with HMRC. These reports provide tax authorities with information about the global allocation of income, taxes paid, and economic activity, supporting enforcement of transfer pricing rules.
Digital Services Tax
Since April 2020, certain digital businesses have been subject to the Digital Services Tax (DST) at 2% of UK revenues. This applies to search engines, social media platforms, and online marketplaces with global revenues exceeding £500 million and UK revenues exceeding £25 million.
DST is separate from Corporation Tax but may affect overall tax planning for digital businesses. It is calculated on UK revenues from social media platforms, search engines, and online marketplaces, with a £25 million allowance for each group. Companies should ensure they understand whether they fall within scope.
The UK government has indicated that DST is intended as a temporary measure pending international agreement on taxing the digital economy. The OECD Pillar One proposals may eventually replace DST with a more comprehensive international framework, but timing remains uncertain.
Anti-Avoidance Provisions
The UK tax system includes numerous anti-avoidance provisions designed to prevent artificial arrangements that reduce tax liabilities. The General Anti-Abuse Rule (GAAR) provides a broad backstop allowing HMRC to counteract tax advantages arising from abusive arrangements.
Specific anti-avoidance rules target particular types of transactions, including loans to participators, distributions in respect of share capital, and certain corporate reconstructions. Companies should ensure that any tax planning arrangements have genuine commercial substance beyond tax benefits.
The Disclosure of Tax Avoidance Schemes (DOTAS) rules require promoters and users of certain tax arrangements to notify HMRC. Failure to disclose can result in significant penalties, and disclosed schemes receive increased scrutiny. The UK’s approach increasingly focuses on prevention and early detection of aggressive tax planning.
International Aspects and Double Taxation
UK resident companies are taxed on their worldwide profits, while non-resident companies are only taxed on UK-source income. A company is considered UK resident if it is incorporated in the UK or if its central management and control is exercised in the UK.
Double Taxation Agreements (DTAs) with numerous countries prevent the same income being taxed twice. These agreements typically allow credit for foreign taxes paid against UK Corporation Tax liability, or in some cases exempt certain income entirely. Understanding applicable DTAs is essential for internationally active businesses.
The Controlled Foreign Companies (CFC) rules bring overseas subsidiary profits into the UK tax net in certain circumstances. These rules prevent UK companies from parking profits in low-tax jurisdictions. However, various exemptions apply, particularly for genuine trading activities conducted overseas.
Record Keeping Requirements
Companies must maintain records sufficient to allow completion of an accurate Corporation Tax Return. Records must generally be kept for at least 6 years from the end of the relevant accounting period, though longer retention may be prudent for certain documents.
Required records include details of all money received and spent, all sales and purchases of goods, and all assets and liabilities. This encompasses bank statements, invoices, receipts, contracts, and any other documentation supporting the figures in the accounts and tax return.
Failure to keep adequate records can result in penalties and may prejudice a company’s position in any HMRC enquiry. Good record-keeping also supports efficient tax planning by ensuring all potential deductions and reliefs are identified and claimed.
Planning Strategies Within the Law
Effective Corporation Tax planning involves understanding the rules and using available reliefs legitimately. Timing of expenditure can make a significant difference, particularly for capital purchases where Annual Investment Allowance or full expensing may accelerate tax relief.
Remuneration planning for owner-managers requires balancing Corporation Tax, Income Tax, and National Insurance. The optimal mix of salary, bonuses, dividends, and pension contributions depends on individual circumstances, including other income sources and personal financial objectives.
Structuring business activities to maximise available reliefs, such as Research and Development tax credits or Patent Box, can substantially reduce effective tax rates. However, such planning must be commercially driven and properly documented to withstand potential HMRC challenge.
Frequently Asked Questions
Conclusion
Understanding UK Corporation Tax is essential for every limited company operating in the United Kingdom. The 2025/26 tax year maintains the two-tier rate structure introduced in April 2023, with the Small Profits Rate of 19% for profits up to £50,000 and the Main Rate of 25% for profits exceeding £250,000. Marginal Relief provides a graduated transition for companies in between.
Accurate calculation requires consideration of numerous factors beyond basic rates, including associated companies, short accounting periods, and the nature of your business activities. Understanding payment deadlines, filing requirements, and available reliefs ensures compliance while minimising tax liability within the law.
This calculator helps you estimate your Corporation Tax liability based on your specific circumstances. For complex situations involving multiple companies, international activities, or significant tax planning decisions, professional advice from a qualified accountant or tax adviser is recommended. HMRC also provides guidance and calculators on its website for specific situations such as Marginal Relief calculations.