Corporation Tax, Explained
By Mustafa Bilgic · Updated 24 August 2026
Every UK limited company pays corporation tax on its taxable profits, and the rate depends on how much profit you make. Small companies pay less than large ones, with marginal relief smoothing the gap in between. Use our corporation tax calculator to work out your bill at the current HMRC rate before your filing deadline.
Corporation tax rates and thresholds change with each Finance Act. The calculator applies the current HMRC figures so you always get an up-to-date result.
How Corporation Tax Works
Corporation tax is charged on your company's taxable profits -- trading income, investment returns, and chargeable gains after allowable deductions. You calculate the bill yourself through your Company Tax Return (CT600) and pay HMRC directly. There is no PAYE-style collection; you are responsible for getting the numbers right and paying on time.
The payment deadline is nine months and one day after the end of your accounting period. File the CT600 within 12 months of the period end. Miss either deadline and HMRC charges penalties and interest. If your company is new, your first accounting period can be up to 18 months, but you may need to file two returns to cover it. Run the figures through our corporation tax calculator to see your liability at the current rate.
Marginal Relief for Smaller Profits
Companies with profits below the lower threshold pay the small profits rate. Those above the upper threshold pay the main rate. Between the two thresholds, marginal relief applies -- a formula that gradually increases the effective rate as profits rise. The result is that companies in the marginal band pay an effective rate higher than the small profits rate but lower than the main rate.
If your company has associated companies (other companies controlled by the same people), the thresholds are divided by the number of associated companies plus one. Two associated companies means each threshold is split three ways, which can push a modest-profit company into the marginal or main rate band unexpectedly. Count your associated companies before you assume you qualify for the small profits rate.
Deductions That Reduce Your Bill
Allowable business expenses reduce taxable profit and therefore reduce your corporation tax. Staff salaries (including your own director's salary), rent, office supplies, professional subscriptions, accountancy fees, and business insurance all qualify. Capital expenditure is handled through capital allowances rather than as a direct deduction -- the Annual Investment Allowance lets you deduct the cost of qualifying plant and machinery in the year of purchase, up to the current limit.
Pension contributions made by the company on behalf of directors or employees are a deductible expense and do not attract employer NI. This makes company pension contributions one of the most tax-efficient ways to extract value, particularly when combined with salary sacrifice. Speak to your accountant about the optimal split between salary, dividends, and pension for your specific profit level.
Common Mistakes to Avoid
Mixing personal and company expenses is the fastest way to trigger an HMRC enquiry. If the company pays for something that is not wholly and exclusively for business purposes, it becomes a benefit in kind -- taxable on you personally and still potentially disallowed as a company deduction. Keep personal spending out of the company bank account entirely.
Failing to set aside cash for the tax bill is the other classic error. Corporation tax is paid in a lump sum, and if you have already distributed the profits as dividends, the company may not have the funds to pay. A simple rule: ring-fence an amount equal to the current rate on every pound of profit as it comes in, so the money is there when the bill arrives. This guide does not replace professional advice.
Not tax advice -- speak to your accountant.
Frequently asked questions
When do I need to pay corporation tax?
Nine months and one day after the end of your company's accounting period. For most companies with a 31 March year end, that means payment is due by 1 January. Large companies paying over a set threshold must pay in quarterly instalments.
Do I pay corporation tax on dividends received from another UK company?
No. Dividends received from other UK companies are generally exempt from corporation tax. They are included in your CT600 for reporting purposes but are not added to taxable profits.
What is the difference between corporation tax and income tax?
Corporation tax applies to the profits of a limited company. Income tax applies to individuals, including sole traders. If you run a limited company, you pay corporation tax on company profits and income tax personally on the salary and dividends you extract.
Can I carry forward losses to reduce future tax?
Yes. Trading losses can be carried forward indefinitely and set against future trading profits of the same company. You can also carry losses back one year to claim a refund on corporation tax already paid.