Corporation tax
Corporation tax is the tax a UK limited company pays on its taxable profits, including trading profits, investment income and chargeable gains. For 2026/27 the small profits rate is 19% and the main rate is 25%, with marginal relief between the two profit limits.
Also known as: company tax, CT
How it works
Corporation tax is charged on the profit your company makes in an accounting period, not on the money you personally take out. You work out taxable profit by taking the profit in your statutory accounts and adjusting it: adding back costs tax law does not allow, such as client entertaining and depreciation, and deducting capital allowances on qualifying equipment.
For 2026/27 the rate depends on profit. Profits up to £50,000 are taxed at 19%. Profits above £250,000 are taxed at 25% on the whole amount. Between those two limits the main rate applies and marginal relief reduces the bill, which produces an effective rate on the slice between the limits of around 26.5%. Both limits are divided by the number of associated companies, so a director with three companies under common control gets a third of each limit.
Payment and filing are separate deadlines and this catches out most new directors. Corporation tax is due nine months and one day after the end of the accounting period. The CT600 return and accounts are not due until twelve months after the period end. In other words you pay before you file. Large companies with profits over £1.5m pay by quarterly instalments instead.
Interest runs automatically on tax paid late, and HMRC pays a smaller amount of credit interest if you pay early. Penalties apply to the return rather than the payment: £100 immediately after the filing deadline, another £100 after three months, then percentage-based penalties once the return is six and twelve months late.
Where a rule depends on your circumstances, such as associated companies, losses carried back, or research and development claims, the numbers change materially. Our corporation tax returns service works those through with your figures.
Worked example (2026/27)
Company with £120,000 taxable profit (2026/27)
| Taxable profit | £120,000 |
|---|---|
| Main rate at 25% | £30,000 |
| Marginal relief (3/200 of £130,000) | −£1,950 |
| Corporation tax payable | £28,050 |
| Effective rate | 23.4% |
Marginal relief assumes one company with no associated companies and a 12-month accounting period.
Who this affects
- Contractors trading through a personal service company, where profit after salary is taxed here before dividends are drawn
- E-commerce sellers whose stock and platform fees change the profit figure the tax is charged on
- SaaS founders capitalising development costs, which affects both profit and any R&D claim
- Landlords using a property company, where rental profit is corporation tax rather than income tax
- Any director with more than one company, because associated companies cut the profit limits
Common mistakes
- Treating the filing deadline as the payment deadline and paying three months late
- Forgetting associated companies, so the small profits limit is overstated
- Deducting client entertaining or depreciation, neither of which is allowable
- Leaving no cash aside because the profit was already drawn as dividends
Frequently asked questions
When is corporation tax due?
Nine months and one day after the end of your accounting period. A period ending 31 March means payment by 1 January, with the CT600 due by the following 31 March.
Do I pay corporation tax on money left in the company?
Yes. The tax is on profit for the period, whether or not you take it out. Drawing dividends later does not reduce the corporation tax already charged.
What rate will my company pay in 2026/27?
19% on profits up to £50,000, 25% on profits over £250,000, and the main rate reduced by marginal relief in between.
Can losses reduce the bill?
Trading losses can be set against other profits of the same period, carried back one year, or carried forward. The best route depends on the rate applying in each year.
Related terms
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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