If you run a UK limited company, Corporation Tax is one of the main costs you need to plan for. But calculating the bill is not as simple as taking the money your business has earned and applying a tax rate.
Your company pays Corporation Tax on its taxable profits. Those profits can differ from the profit shown in your accounts because some expenses are not deductible, certain assets qualify for separate tax relief, and losses may be available to offset profits.
For Corporation Tax financial years beginning on or after 1 April 2026, the small profits rate is 19% for qualifying profits of £50,000 or less. The main rate is 25% for profits above £250,000, with Marginal Relief potentially applying between the two thresholds. The thresholds can be reduced for companies with associated companies or accounting periods shorter than 12 months.
This guide explains how Corporation Tax works, how to calculate a company’s taxable profit, which costs may qualify for tax relief, when to pay HMRC and how to avoid common mistakes.
How Does Corporation Tax Work for a Small Business?
A limited company generally pays Corporation Tax on its taxable profits. The calculation starts with the company’s accounts and adjusts the accounting profit or loss to reflect the relevant tax rules.A simplified calculation looks like this:Accounting profit + non-deductible expenses − relevant tax deductions and reliefs = taxable profitThe result is then used to calculate the Corporation Tax due.Consider a company with £100,000 in sales and £60,000 in qualifying business costs.| Calculation | Amount |
| Sales income | £100,000 |
| Qualifying business costs | £60,000 |
| Illustrative taxable profit | £40,000 |
| Corporation Tax at 19% | £7,600 |
Who Pays Corporation Tax?
UK limited companies generally need to deal with Corporation Tax on their taxable profits. Certain other organisations may also fall within the Corporation Tax rules.Sole traders operate differently. A sole trader generally pays Income Tax on taxable business profits through Self Assessment, together with any applicable National Insurance contributions. The business owner and the business are not separate legal entities in the same way as a limited company and its owner.A limited company, by contrast, has its own tax obligations. Its Corporation Tax liability belongs to the company, not directly to the director.This distinction also affects how business owners take money out of their businesses. A company may pay a director a salary or distribute dividends, but those payments have different tax consequences.If you are comparing business structures, our guide to sole trader vs limited company and the treatment of expenses explains some of the practical differences.How Is Taxable Profit Calculated?
Your company’s profit and loss account provides the starting point for the Corporation Tax calculation, but the accounting figure may need adjustments.A typical calculation involves four stages.- Prepare accurate accounts. Record the company’s income, expenses, payroll, assets, liabilities and transactions with directors.
- Identify items with different tax treatment. Some accounting expenses are not deductible for Corporation Tax. Depreciation, for example, is normally added back when calculating taxable profits, with capital allowances considered separately where applicable.
- Apply relevant deductions and reliefs. These may include qualifying business expenses, capital allowances and eligible loss relief.
- Calculate the tax due. Apply the appropriate rate and consider Marginal Relief or other relevant rules.
Example: Why accounting profit and taxable profit can differ
Suppose a company reports an accounting profit of £60,000. During the year, it records £5,000 of expenditure that is not deductible for Corporation Tax purposes.Its simplified calculation would be:| Calculation | Amount |
| Accounting profit | £60,000 |
| Add back non-deductible expenditure | £5,000 |
| Taxable profit before other adjustments | £65,000 |
Which Expenses Can Reduce Corporation Tax?
Claiming legitimate business expenses correctly is one of the practical ways a company can avoid paying more Corporation Tax than necessary.
A company can generally deduct qualifying revenue expenses incurred for business purposes, subject to the relevant tax rules. Examples may include:
- Employee wages and employer National Insurance contributions.
- Business premises costs and insurance.
- Accountancy and professional fees.
- Business software and office costs.
- Advertising and marketing.
- Qualifying business travel.
- Certain finance costs and other operating expenses.
The important question is not simply who paid the bill. It is what the cost was for and how tax law treats it.
For example, a company paying for accounting software used in its business will generally treat that cost differently from a company paying for a director’s personal holiday. The latter is not automatically a deductible business expense just because the company card was used.
Our guide to what expenses small businesses can claim covers common categories and the evidence business owners should retain.
Revenue expenses vs capital expenditure
Day-to-day running costs and purchases of long-term assets can receive different tax treatment.
Revenue expenditure generally relates to operating the business. Examples include office supplies, software subscriptions, routine repairs, insurance and advertising.
Capital expenditure generally relates to acquiring or improving assets that the business expects to use over a longer period. Examples may include machinery, computer equipment and certain vehicles.
A capital purchase does not automatically qualify as an ordinary deductible expense. The company may instead need to claim capital allowances, depending on the asset and the applicable rules.
Practical example: If your company buys a computer for business use, the accounting treatment may spread its cost over its useful life. The tax treatment is calculated separately, and capital allowances may provide relief under the relevant conditions. The timing and amount of that relief should be checked before finalising the Corporation Tax calculation.
Expenses with both business and private use
Some costs are not used exclusively for business. A phone, vehicle, computer or internet connection may have both business and personal use.
Do not automatically claim the full cost without checking the relevant rules. The deductible amount depends on the nature of the expense and how the rules apply. There may also be separate benefit-in-kind or National Insurance implications if a company provides an employee or director with a benefit.
Home-working costs and business travel also have specific rules. See our guides to working from home expenses and business mileage and travel expenses for more detailed explanations.
What about meals and client entertaining?
Meals, business travel and client entertaining should not all be treated alike.
For example, client entertaining is generally not deductible when calculating Corporation Tax, even when it has a clear business purpose. Certain business travel and subsistence costs may qualify, subject to the relevant conditions.
This is an important distinction: an expense can be commercially related to your business without being deductible for tax purposes.
Our guide to meals and entertainment expenses for small businesses explains the differences in more detail.
Keep receipts and supporting records, record the purpose of the expense and check its tax treatment rather than assuming every business-related cost reduces taxable profit.
Corporation Tax Rates for Small Businesses in 2026
The rate your company pays depends on its taxable profits for the accounting period. For financial years starting on or after 1 April 2026:
| Taxable profits | Rate |
| £50,000 or less | 19% (small profits rate) |
| £50,001 to £250,000 | 25%, reduced by Marginal Relief |
| Over £250,000 | 25% (main rate) |
These rates have applied since 1 April 2023. Finance Act 2026 has already fixed them for the year from 1 April 2027, and the Autumn Budget 2026 confirmed the same 19% and 25% rates for the year from 1 April 2028. You can plan on them for at least the next two financial years.
Check HMRC’s Corporation Tax rates and allowances for the rates and conditions relevant to your accounting period.
What does the small profits rate mean in practice?
If a company has £40,000 of qualifying taxable profits and the 19% rate applies, a simplified calculation is:
£40,000 × 19% = £7,600 Corporation Tax
For a company with £300,000 of qualifying taxable profits, the main rate would generally apply:
£300,000 × 25% = £75,000 Corporation Tax
Companies with profits between £50,000 and £250,000 may qualify for Marginal Relief, which adjusts the amount of Corporation Tax payable between the two rates.
For this reason, a company with £80,000 of taxable profit should not simply assume that its entire profit is taxed at 19%. The applicable Marginal Relief calculation and the company’s circumstances need to be considered.
If your company is approaching either threshold, check the calculation before using it to forecast your tax bill.
How does Marginal Relief work?
If your profits fall between £50,000 and £250,000, tax is first worked out at 25%, then Marginal Relief reduces the bill. For a company with no associated companies and a 12-month accounting period, the formula is:
Marginal Relief = 3/200 × (£250,000 − taxable profits)
For example, a company with taxable profits of £100,000 pays £25,000 at the main rate, less Marginal Relief of £2,250 (3/200 × £150,000). Its Corporation Tax bill is £22,750, an effective rate of 22.75%.
| Taxable profits | Corporation Tax | Effective rate |
| £75,000 | £16,125 | 21.5% |
| £100,000 | £22,750 | 22.75% |
| £150,000 | £36,000 | 24% |
Because the relief shrinks as profits rise, each extra pound of profit in this band is effectively taxed at 26.5%. That makes it the band where the timing of deductible spending, such as pension contributions or equipment purchases, saves the most tax. If your company receives dividends from companies outside its group, the calculation changes, so take advice.
How do associated companies affect the thresholds?
The £50,000 and £250,000 limits are shared between associated companies, which broadly means companies controlled by the same person or group of people. Divide both limits by the number of associated companies plus one.
If you own two trading companies, for example, each one has limits of £25,000 and £125,000. On profits of £100,000, your company would pay £24,625 instead of £22,750. A dormant company that carried on no business during the period does not count. The limits are also reduced proportionately for accounting periods shorter than 12 months.
What If Your Company Makes a Loss?
A company does not pay Corporation Tax simply because it has generated sales. Its taxable profits and other relevant tax factors determine the amount due.
If the company makes a qualifying trading loss, relief may be available. Depending on the circumstances, the loss may be carried forward against qualifying future profits, used against certain profits from the same accounting period, or carried back against earlier profits where the rules permit.
For example, a startup might spend money on staff, software, equipment and marketing before it generates enough revenue to cover those costs. If its allowable expenditure exceeds its income, it may report a trading loss. That loss could have tax value, depending on the applicable relief rules.
Do not assume that every accounting loss can be deducted from any future income. The type of loss, the company’s activities and the relevant conditions determine what can be claimed.
See HMRC’s guidance on Corporation Tax loss relief for the available rules.
When Must a Small Company Pay Corporation Tax?
Corporation Tax payment and Company Tax Return filing have separate deadlines.
For most companies with taxable profits of up to £1.5 million, Corporation Tax is due 9 months and 1 day after the end of the accounting period. The Company Tax Return is normally due 12 months after the end of that period.
Companies with higher profits may have to pay in instalments, so the standard deadline does not apply to every business.
| Requirement | Usual deadline |
| Pay Corporation Tax | 9 months and 1 day after the accounting period ends |
| File the Company Tax Return | 12 months after the accounting period ends |
| File annual accounts with Companies House | Usually 9 months after the financial year ends for an established private limited company |
For official details, see HMRC’s payment guidance and Company Tax Return deadlines.
Example: A company with a 31 March year end
Suppose your Corporation Tax accounting period ends on 31 March 2026.
- Corporation Tax payment deadline: 1 January 2027.
- Company Tax Return filing deadline: 31 March 2027.
- Companies House accounts deadline: normally 31 December 2026 for an established private limited company with that financial year end.
This is why waiting until the return filing deadline to arrange payment can create a cash-flow problem. The tax is normally due three months before the return itself must be filed.
A sensible approach is to estimate taxable profit during the year and reserve enough cash to meet the expected bill. Your bank balance is not a reliable measure of how much money is available to spend because part of it may be needed for Corporation Tax, VAT, payroll or other liabilities.
What happens in a company’s first year?
A new company’s first accounts may cover more than 12 months. However, a Corporation Tax accounting period cannot normally exceed 12 months, so a company may need to file more than one Company Tax Return for its first accounts period.
Check the relevant Corporation Tax accounting periods and deadlines individually. Do not assume that the Companies House accounts deadline is also the Corporation Tax deadline.
How Do You File a Corporation Tax Return?
A limited company generally reports its taxable profit and Corporation Tax liability through a Company Tax Return, commonly known as the CT600.
Preparing the return involves more than copying figures from the profit and loss account. The company needs to calculate its taxable profit, apply the relevant tax rules and provide the required accounts and tax computations.
The process typically involves:
- Preparing accurate company accounts.
- Checking expenses, capital expenditure, director transactions and other items for their tax treatment.
- Calculating taxable profits, considering available reliefs and determining the Corporation Tax liability.
- Preparing and submitting the Company Tax Return with the required supporting information.
- Paying the tax by its separate payment deadline.
A company that makes a loss or has no Corporation Tax to pay may still need to file a return if HMRC has issued a notice requiring one. Do not assume that no tax due means no return is required.
If your company has stopped trading or is dormant, check its obligations with HMRC rather than ignoring a notice to file.
What Are the Penalties for Late Corporation Tax Filing?
Missing a Company Tax Return deadline can lead to penalties even when the company has no Corporation Tax to pay.
For returns with filing dates on or after 1 April 2026, the standard flat-rate penalties are:
| Filing position | Standard penalty |
| Return filed late, within 3 months of the deadline | £200 |
| Return filed more than 3 months late | £400 |
| Third or successive consecutive failure, filed within 3 months of the deadline | £1,000 |
| Third or successive consecutive failure, filed more than 3 months late | £2,000 |
Additional tax-related penalties can apply if a return remains outstanding for longer. Late payment is also a separate issue: interest can be charged on overdue Corporation Tax.
If you miss a deadline, deal with the outstanding return as soon as possible and check the position with HMRC. A reasonable excuse may allow you to appeal a penalty, but you should not assume an appeal will automatically be accepted.
See HMRC’s late filing penalty guidance.
How Can a Small Business Manage Corporation Tax More Effectively?
Good tax management starts before the end of the accounting period. The aim is not to spend money unnecessarily to reduce tax. It is to calculate taxable profit correctly, claim legitimate reliefs and avoid problems that could have been prevented.
Here are five practical areas to review.
1. Keep bookkeeping up to date
If your records are several months behind, it becomes harder to estimate profit, identify missing expenses or know how much cash to reserve for tax.
Regular bookkeeping also makes it easier to spot unusual transactions, reconcile bank accounts and correct errors before the year-end accounts are prepared.
2. Review capital purchases before committing to them
If you are planning to buy machinery, computers or other equipment, check the potential capital allowances and the conditions that apply. The tax relief may differ from the accounting treatment, and the timing of the purchase can matter.
However, do not buy an asset you do not need just to reduce Corporation Tax. Spending £1 to save only a portion of that amount in tax still leaves the company worse off financially if the purchase has no real business value.
3. Check how director payments are recorded
If you, your spouse or a business partner control another company, your 19% band is probably smaller than you think. Review this before setting up a new company or buying into one: a company counts as associated even if the link existed for only part of the accounting period, so the change can affect the whole year’s thresholds. See how associated companies affect the thresholds.
4. Check associated companies and profit thresholds
If you, your spouse or a business partner control another company, your 19% band is probably smaller than you think. Review this before setting up a new company or buying into one: a company counts as associated even if the link existed for only part of the accounting period, so the change can affect the whole year’s thresholds.
See how associated companies affect the thresholds.
5. Reserve cash for tax before spending the profits
A profitable company can still run short of cash if the money is spent before tax falls due.
Estimate the likely Corporation Tax liability as the year progresses. Review the figure when your results change materially, and set aside cash so the payment deadline does not come as a surprise.
This is especially important for businesses with seasonal income, large customer invoices or significant planned expenditure.
Frequently Asked Questions About Corporation Tax
Does every limited company pay Corporation Tax?
A limited company generally needs to deal with Corporation Tax, but it may not have tax to pay if it has no taxable profits or qualifies for relevant reliefs. It may still need to file a Company Tax Return if HMRC has issued a notice requiring one.
Can I reduce Corporation Tax by claiming more expenses?
You can claim qualifying business expenses and relevant reliefs, but you cannot legitimately deduct personal costs simply to reduce tax. Keep supporting evidence and check the tax treatment of each category of expenditure.
Is Corporation Tax calculated on turnover or profit?
Corporation Tax is generally calculated on taxable profits, not turnover. The taxable profit may differ from the accounting profit after adjustments for non-deductible expenses, capital allowances and relevant reliefs.
Can a company pay Corporation Tax if it makes a loss?
A company with a trading loss will not normally pay Corporation Tax on that loss, but its overall tax position may include other income or gains. Qualifying losses may be eligible for relief under the relevant rules.
Does a company need an accountant to file its Corporation Tax Return?
A company is not generally required to appoint an accountant to prepare and file its return. Directors remain responsible for the company’s obligations. Professional support can be particularly useful when the company has capital expenditure, losses, associated companies, director’s loan transactions or uncertainty about tax adjustments.
Corporation Tax Support for Small Businesses
Corporation Tax is easier to manage when your records are accurate, you understand which costs qualify for relief and you know when payments and returns are due.
For small company owners, the objective is to avoid preventable errors, plan for tax payments and make informed decisions about business expenditure and director remuneration. These decisions are easier to manage when bookkeeping and tax planning are part of the company’s regular financial management rather than something left until year end.
Adroit Accountax supports small businesses with accounting and tax requirements. If you need help understanding your company’s tax position, preparing year-end accounts or managing ongoing compliance, explore our Small Business Accountants London service.
Need help with your company accounts and Corporation Tax? Contact Adroit Accountax to discuss the accounting and tax support your business needs.
