YF AccountingLast updated: 14 June 2026
4 min read
Corporation tax is one of the biggest costs a limited company faces, and getting to grips with how it works is a key part of running a business well. It is the tax your company pays on its profits, and with a tiered rate system and a few important deadlines, it pays to understand the landscape rather than leave it all to the year-end. This guide walks through the rates, the deadlines, what you can claim, and the practical planning that keeps your bill as low as it legitimately can be.
Current UK Corporation Tax Rates
Since 1 April 2023 the UK has used a graduated approach to taxing company profits, so the rate you pay depends on how much profit your company makes:
Small profits rate: profits up to £50,000 are taxed at 19%.
Marginal relief: profits between £50,001 and £250,000 are taxed at the main rate but with marginal relief applied, giving an effective marginal rate of around 26.5% on profits in this band.
Main rate: profits over £250,000 are taxed at 25%.
Marginal relief smooths the jump between the 19% and 25% rates, so there is no sudden cliff edge as profits grow. One important point that catches people out: these £50,000 and £250,000 thresholds are divided by the number of associated companies. So if you control more than one company, the thresholds are shared between them, and you can end up paying tax at a higher effective rate than you expected.
Marginal Relief Calculator
Use this link to calculate your own marginal relief and effective tax rate.
Key Corporation Tax Deadlines
Corporation tax has two deadlines that work on a different rhythm to most other taxes, and it is easy to mix them up:
Paying the tax: for companies that don’t pay by instalments (most smaller companies), corporation tax is due 9 months and 1 day after the end of your accounting period. So if your year ends on 31 March, the tax is due by 1 January.
Filing the return: your company tax return (the CT600) must be filed with HMRC 12 months after the end of your accounting period.
The quirk here is that you have to pay the tax three months before you have to file the return. That trips a lot of business owners up, so it is well worth working out your liability early rather than waiting until the filing deadline. Missing either deadline triggers penalties and, in the case of late payment, interest on top.
Allowable Expenses – What You Can Deduct
You only pay corporation tax on your profit, so the expenses you can legitimately deduct directly reduce your bill. The general rule is that costs must be incurred “wholly and exclusively” for the purposes of the business. Common allowable expenses include:
Staff salaries, employer’s National Insurance and pension contributions
Rent, utilities and other premises costs
Office supplies, software and equipment
Professional fees, such as your accountant and certain legal costs
Business travel and mileage (but not ordinary commuting)
Marketing, advertising and website costs
Bank charges and interest on business borrowing
Not everything is deductible, though. The classic example is client entertaining, which is specifically disallowed for corporation tax. Knowing which costs count is what makes the difference between an accurate return and either overpaying tax or, worse, claiming something you shouldn’t.
Capital Allowances and the Annual Investment Allowance
Larger one-off purchases – things like equipment, machinery and tools – are usually claimed through capital allowances rather than as ordinary expenses. The main route for most small businesses is the Annual Investment Allowance (AIA), which lets you deduct the full cost of qualifying plant and machinery (cars are treated separately) in the year you buy it.
The AIA limit has changed over the years, so it is worth checking the current figure with HMRC before you make a big purchase. Timing matters too: buying just before, rather than just after, your year-end can bring the tax relief forward by a full year. This is exactly the kind of decision where a quick conversation before you spend can save real money.
Practical Planning to Keep Your Bill Down
Corporation tax planning is not about anything clever or risky – it is about being organised and making the most of the reliefs that are already there. A few practical habits that help:
Keep your bookkeeping up to date so no allowable expense slips through the net.
Make pension contributions through the company where appropriate – employer contributions are usually an allowable expense.
Think about timing of income and large purchases around your year-end.
Plan how you pay yourself. The mix of salary and dividends you take affects both your company’s tax and your personal tax – I cover this in detail in my salary vs dividends guide.
Set the money aside. Putting your estimated corporation tax into a separate account each month means no nasty surprise when the bill falls due.
Getting It Right
With tiered rates, associated-company rules and two different deadlines to juggle, corporation tax has become more involved than it used to be. The good news is that with decent records and a bit of forward planning, it is very manageable – and there are real savings to be had by claiming everything you are entitled to and timing things sensibly.
If you would like a hand with your company accounts and corporation tax return, that is exactly what I do. Take a look at my accounts and corporation tax service, or get in touch for a friendly, no-obligation chat. I am a Manchester-based, fixed-fee accountant, so you will always know exactly what you are paying.
Founder of YF Accounting — a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
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