Last reviewed: 29 September 2026 · Reviewed by IFM's qualified accountant
Corporation Tax is calculated for the company's accounting period using taxable total profits and relevant distributions. The result should come from the tax computation, not from applying 19% or 25% to the accounting profit without adjustments.
What should you know about the 2026/27 rate structure?
For a company with a full 12-month accounting period, no associated companies and no relevant distributions, taxable total profits of £50,000 or less can fall within the 19% small-profits rate for the financial year 2026. Profits above £250,000 are charged at the 25% main rate.
Between those limits, the company generally pays at the 25% main rate less marginal relief. The standard marginal-relief fraction for the financial year 2026 is 3/200.
These are financial-year figures from 1 April 2026, not personal tax-year bands from 6 April 2026. If an accounting period straddles 1 April and rates differ between financial years, the calculation is time apportioned.
What profit is tested?
The rate test uses taxable total profits, not sales and not simply profit in the statutory accounts. The tax computation adjusts for disallowable expenses, capital allowances, taxable gains, losses and reliefs.
Augmented profits add relevant distributions received from companies that are not excluded under the rules. Augmented profits are used to test the thresholds, while taxable total profits enter the tax calculation. A company receiving dividends from another company should not assume every dividend is irrelevant.
Ring-fence profits from oil extraction follow different rates and are outside the ordinary small-company example.
What should you know about associated companies?
The £50,000 and £250,000 limits are divided by the number of associated companies, including the company itself. If there are two associated companies for the relevant period, the ordinary limits are generally halved for each company.
Companies are associated where one controls the other or both are under common control. Control can arise through share capital, voting power, income rights, assets on winding up and rules attributing rights of associates.
Companies are not ignored simply because they trade separately, have different bank accounts or were formed for different family members. Dormant companies can sometimes be excluded, but the statutory conditions matter. Changes during the accounting period require time-sensitive treatment.
Before estimating the rate, map companies controlled by the same person or group and record ownership, voting and economic rights.
What should you know about short accounting periods?
For an accounting period shorter than 12 months, the profit limits are proportionately reduced. A six-month period with no associated companies does not ordinarily retain the full annual £50,000 and £250,000 limits.
This matters after incorporation, a year-end change or cessation. It can also interact with associated-company division. Use the exact number of days and statutory method in the software or computation.
A long set of statutory accounts can contain two Corporation Tax accounting periods because a Corporation Tax accounting period cannot exceed 12 months. Each period needs its own rate and limit analysis.
How marginal relief works?
Marginal relief smooths the transition between the 19% small-profits rate and the 25% main rate. The statutory calculation uses the upper limit, augmented profits, taxable total profits and the 3/200 standard fraction for financial year 2026.
The effective marginal rate on an extra pound within the band can be higher than either headline rate because relief is withdrawn as profits rise. That is why decisions around bonuses, employer pension contributions, capital expenditure or timing should use an incremental computation rather than a flat percentage.
Do not describe marginal relief as a separate claim that always needs an election. It is part of computing the Corporation Tax due where the conditions are met, but the return and computation must contain accurate inputs.
HMRC provides an online calculator for straightforward cases. Complex associated-company, distribution or straddling-period cases need a full tax computation.
What should you know about profit planning without distortion?
Legitimate business expenditure can reduce taxable profit, but spending £1 solely to save a fraction of £1 in tax leaves the company with less cash. Start with what the business needs: people, systems, equipment, working capital, risk protection and long-term investment.
Capital purchases may obtain allowances rather than an accounts expense deduction. The timing and rate of relief depend on the asset and allowance. Pension contributions, bonuses and bad-debt provisions each have their own payment, evidence and timing rules.
Forecast taxable profit quarterly. Include disallowable entertaining, depreciation replaced by capital allowances, benefits, interest restrictions where relevant and gains. Revisit associated companies when ownership changes.
What should you know about payment and filing are separate?
Most small companies pay Corporation Tax nine months and one day after the end of the accounting period and file the Company Tax Return 12 months after that period. Larger companies can fall into quarterly instalment payment rules, which require separate analysis.
The accounts filing date at Companies House is another deadline. Paying the estimated Corporation Tax does not file the return, and filing a return does not itself make the bank payment.
Use the payment reference for the correct accounting period and allow clearing time. Check the business tax account for allocation and interest.
What should you know about losses and groups?
A current-year trading loss may be set against other profits of the same period, carried back or carried forward subject to conditions and claims. Group relief can be available between qualifying companies. These choices affect taxable total profits and cash timing.
Do not create an associated company solely to multiply commercial activity and assume each receives a fresh £50,000 band. Association usually divides the limits, and anti-avoidance and commercial consequences may apply.
Where ownership, groups or investment income make the result unclear, document the structure before the return is due.
What should you know about a useful internal forecast?
Show accounts profit, tax adjustments, taxable total profits, augmented profits, associated-company count, apportioned limits, rate calculation and payments already made. Present a range if the final profit is uncertain.
Label the rate assumptions “financial year beginning 1 April 2026” rather than merely “current”. That makes later review safer.
See limited company accounts and tax support for the relevant service page. Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What should you know about review points before finalising?
Reconcile profit to the statutory accounts and list every tax adjustment. Confirm the dates and length of each Corporation Tax accounting period, then identify rates for each financial year involved.
Obtain an ownership chart and test associated companies throughout the period, not only at year end. Review distributions received, losses, group relief and capital allowances. Compare the final liability with payments and prior forecasts.
Where marginal relief changes a commercial decision, show both the tax saved and the cash spent. The objective is not to force profit beneath a threshold; it is to make sound expenditure and remuneration decisions with the correct incremental tax cost visible.
Retain the computation, ownership evidence and rate assumptions with the return. This supports the figure if HMRC later asks how the limits or marginal relief were calculated.
What should you read next?
Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What do people also ask about this topic?
What should you know about the 2026/27 rate structure?
For a company with a full 12-month accounting period, no associated companies and no relevant distributions, taxable total profits of £50,000 or less can fall within the 19% small-profits rate for the financial year 2026. Profits above £250,000 are charged at the 25% main rate.
What profit is tested?
The rate test uses taxable total profits, not sales and not simply profit in the statutory accounts. The tax computation adjusts for disallowable expenses, capital allowances, taxable gains, losses and reliefs.
What should you know about associated companies?
The £50,000 and £250,000 limits are divided by the number of associated companies, including the company itself. If there are two associated companies for the relevant period, the ordinary limits are generally halved for each company.
What should you know about short accounting periods?
For an accounting period shorter than 12 months, the profit limits are proportionately reduced. A six-month period with no associated companies does not ordinarily retain the full annual £50,000 and £250,000 limits.
Which official sources support this guide?
- https://www.gov.uk/corporation-tax-rates
- https://www.gov.uk/government/publications/budget-2025-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances
- https://www.gov.uk/guidance/corporation-tax-marginal-relief
General guidance, not advice for your situation.
