How limited company corporation tax is worked out
Every UK limited company (ltd company) pays corporation tax on its profit, and for the 2026/27 financial year the HMRC rates run on three bands. Profits up to the £50,000 lower limit are taxed at the 19% small profits rate. Profits above the £250,000 upper limit are taxed at the 25% main rate. In between, you charge 25% and then subtract marginal relief, which pulls the effective rate down toward 19% for smaller profits and up toward 25% as profit grows. Marginal relief is the standard fraction 3/200 multiplied by (£250,000 minus your profit), assuming no exempt distributions from non-group companies. If your company has associated companies under common control, the £50,000 and £250,000 limits are divided by one plus the number of those companies.
Company profit tax is not your dividend tax
This is a company profit tax, charged on what the business earns. It is a separate charge from the tax you pay personally when you draw that profit out as dividends. A director takes profit after corporation tax, then pays dividend tax on the amount they receive, so the two stack. That is the trade-off behind the salary-versus-dividends question. To see the personal side, use the dividend tax calculator. Treat this as a way to see the numbers, not as tax advice.
Frequently asked questions
How much is corporation tax in the UK?
For the 2026 financial year, profits up to £50,000 are taxed at the 19% small profits rate and profits above £250,000 at the 25% main rate. Profits between the two are charged at 25% then reduced by marginal relief, so the effective rate climbs gradually from 19% to 25%.
How does marginal relief work?
Marginal relief eases the jump between the 19% and 25% rates. You charge 25% on the profit, then subtract the standard fraction 3/200 multiplied by (£250,000 minus your profit). On a £100,000 profit that relief is £2,250, so the tax is £22,750 rather than £25,000.
What are the corporation tax rates for 2026?
The small profits rate is 19%, the main rate is 25%, and the marginal relief band sits between the £50,000 lower limit and the £250,000 upper limit. These have been unchanged since 1 April 2023 and stay the same for financial years starting on or after 1 April 2026.
How do associated companies affect corporation tax?
The £50,000 and £250,000 limits are divided by one plus the number of associated companies, so companies under common control share the thresholds. Two associated companies would cut the limits to £25,000 and £125,000 each, pushing more profit toward the main rate.
Is corporation tax paid on turnover or profit?
Corporation tax is paid on profit, not turnover. You take your turnover and subtract allowable business expenses, capital allowances and any reliefs to reach the taxable profit. A company with £500,000 of sales and £460,000 of costs pays tax on the £40,000 profit, not the full £500,000.
How can I reduce my corporation tax?
You lower the bill by lowering taxable profit through legitimate means. The main levers are claiming every allowable expense, making employer pension contributions, claiming capital allowances on equipment, R&D relief if you develop products or processes, and balancing salary against dividends. Keep clean records so nothing deductible is missed, and check anything material with an accountant.
Does my limited company have to pay corporation tax?
Yes, if it makes a profit. Every UK limited company pays corporation tax on its taxable profits, and there is no tax-free allowance the way there is for personal income. You still file a company tax return even in a year with no tax to pay. A dormant company with no trading activity has no corporation tax to pay but keeps its filing duties with HMRC and Companies House.
This tool is a guide, not tax or financial advice.
