Quick Answer
Corporation tax in the UK is paid on a company's taxable profits, not its turnover. For 2026/27, companies with profits up to £50,000 pay 19% (small profits rate). Companies with profits over £250,000 pay 25% (main rate). Companies between these thresholds benefit from marginal relief, which tapers the effective rate between 19% and 25%.
What is corporation tax?
Corporation tax is a tax on a company's taxable profits. It is not paid on turnover, this is one of the most common points of confusion, particularly for new directors.
Turnover is the total revenue your company receives. Taxable profit is what remains after you deduct allowable business expenses. You only pay corporation tax on the profit figure, not on the money coming in.
For 2026/27, companies pay their corporation tax bill nine months and one day after the end of their accounting period. Most companies have a year-end of 31 March or 31 December, though any date is permitted.
The two rates for 2026/27
Two rates have applied since 1 April 2023, following changes introduced in the Finance Act 2023. HMRC publishes the current figures in its Corporation Tax rates and allowances publication on GOV.UK.
Small profits rate: 19%: applies to companies with taxable profits of £50,000 or less.
Main rate: 25%: applies to companies with taxable profits above £250,000.
| Profit band | Rate for 2026/27 |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,000 – £250,000 | Tapers 19% → 25% via marginal relief (fraction 3/200) |
| Above £250,000 | 25% (main rate) |
These thresholds are divided by the number of associated companies (related companies under common control). If you own two companies, each threshold is halved, so the small profits rate applies up to £25,000 of profit per company.
What is marginal relief?
Companies with profits between £50,000 and £250,000 benefit from marginal relief. This tapers the effective tax rate between 19% and 25%, so there is no cliff-edge at either threshold.
The marginal relief fraction is 3/200. To calculate the relief:
Marginal relief = (£250,000 − taxable profit) × 3/200
This relief is deducted from the tax that would otherwise be due at 25%.
Example: A company with £120,000 of taxable profit.
- Tax at main rate: £120,000 × 25% = £30,000
- Marginal relief: (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950
- Corporation tax due: £30,000 − £1,950 = £28,050
- Effective rate: 23.4%
HMRC provides a marginal relief calculator on GOV.UK if you want to check the official figure for your accounting period.
Three worked examples at different profit levels
Example 1: Small company, £40,000 profit
£40,000 × 19% = £7,600 corporation tax due.
Example 2: Mid-size company, £150,000 profit
Tax at 25%: £37,500 Marginal relief: (£250,000 − £150,000) × 3/200 = £1,500 Tax due: £36,000 Effective rate: 24.0%
Example 3: Larger company, £300,000 profit
£300,000 × 25% = £75,000 corporation tax due. No marginal relief applies above £250,000.
Use our corporation tax calculator for instant results at any profit level, including the marginal relief calculation.
When do you need to pay corporation tax?
The payment deadline depends on your company size.
For small and medium-sized companies (those not required to make quarterly instalment payments), corporation tax is due nine months and one day after the end of your accounting period.
For a company with a 31 March year-end, the 2026/27 tax is due on 1 January 2028.
You must also file your Company Tax Return (CT600) with HMRC within 12 months of the end of your accounting period. The payment deadline and the filing deadline are different, the payment is due sooner.
Late payment attracts interest at HMRC's current rate, and late filing triggers automatic penalties starting at £100.
What expenses reduce my corporation tax bill?
Allowable business expenses are deducted before calculating taxable profit. HMRC's guidance lists the main categories, which include:
- Staff salaries, employer NI, and pension contributions
- Office rent, utilities, and business rates
- Equipment and machinery (via capital allowances)
- Professional fees (accountants, solicitors)
- Business travel and subsistence
- Marketing and advertising
Capital expenditure (equipment, vehicles, computers) is not deducted as a standard expense. Instead, you claim capital allowances. The Annual Investment Allowance allows a 100% deduction for qualifying capital expenditure up to £1 million per year.
Personal expenses and entertaining clients are generally not allowable. There is a specific rule preventing deduction of business entertaining with the intent of attracting new clients.
Is corporation tax paid on turnover or profit?
On profit, always. This distinction matters enormously in practice.
A company turning over £500,000 but spending £460,000 on allowable costs has £40,000 of taxable profit. It pays corporation tax on £40,000, not on £500,000.
New directors sometimes confuse this with VAT, which is calculated on turnover (specifically on sales of taxable goods and services). Corporation tax is entirely separate.
Directors' salaries and corporation tax
A salary paid to a director is an allowable business expense. This reduces your company's taxable profit and therefore reduces your corporation tax bill.
A common strategy for owner-managed companies is to pay a salary up to the NI secondary threshold (£96.15 per week / £5,000 per year for 2026/27) to reduce the profit subject to corporation tax, then take the remaining profit as dividends. Dividends are paid from post-tax profit and attract dividend tax, not NI, see GOV.UK's tax on dividends page for the current rates and allowance.
This interplay between corporation tax and dividend tax is where most limited company planning centres. See our dividend tax calculator for how that second layer of taxation works.
If you operate as a contractor and are wondering whether your contracts fall under IR35, the corporation tax position is only one part of the picture. Our guide to inside vs outside IR35 compares take-home pay both ways, and the IR35 calculator gives the full comparison for your day rate.
Frequently asked questions
Is corporation tax calculated on turnover or profit?
Profit. Corporation tax applies to taxable profits, what remains after deducting all allowable business expenses from revenue. A company with high turnover but thin margins pays corporation tax only on the margin.
What is the corporation tax rate for a small company in 2026/27?
19%, applying to companies with annual profits up to £50,000. Above £50,000 and below £250,000, marginal relief applies. Above £250,000, the main rate is 25%.
What is marginal relief and how does it work?
Marginal relief reduces the effective corporation tax rate for companies with profits between £50,000 and £250,000. The formula is: (£250,000 − taxable profit) × 3/200. This amount is subtracted from the tax calculated at 25%.
When must corporation tax be paid?
Nine months and one day after the end of your accounting period. For a 31 March year-end, that means 1 January of the following calendar year. Large companies paying in quarterly instalments have a different schedule.
Can I reduce my corporation tax bill by paying myself a bonus?
Yes. A director's salary or bonus is an allowable business expense and reduces taxable profit. However, the salary is subject to income tax and National Insurance. You need to weigh the corporation tax saving against the employment tax cost to find the optimal balance, our corporation tax calculator helps with this analysis.
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