Corporation Tax Guide 2026 for UK Limited Companies: Rates, Deadlines, Reliefs & Planning

Last updated: February 2026 · Covers the 2025/26 and 2026/27 tax years · Reviewed for accuracy against HMRC guidance

Corporation Tax is the single largest tax obligation most UK limited companies face — and the rules change regularly. Whether you've just incorporated or you're planning year-end strategy for a growing company, this guide walks you through everything from rates and registration to reliefs, penalties and the major changes arriving from April 2026.

On this page:

• What is Corporation Tax?
• Who Must Pay Corporation Tax?
• Corporation Tax Rates for 2025/26 and 2026/27
• Marginal Relief Explained (With Worked Example)
• How to Register for Corporation Tax
• How to Calculate Your Corporation Tax Bill
• Corporation Tax Deadlines: Filing and Payment
• How to File and Pay Corporation Tax
• Quarterly Instalment Payments (QIPs)
• Corporation Tax Penalties — Including the April 2026 Increases
• Corporation Tax Reliefs and Allowances
• Capital Allowances in 2026: Full Expensing, AIA & the New 40% FYA
• R&D Tax Relief for Innovative Companies
• Year-End Tax Planning Checklist for 2025/26
• Key Changes from April 2026 and Beyond
• Corporation Tax and Dividends: What Directors Need to Know
• Associated Companies: How They Affect Your Thresholds
• Making Tax Digital and Corporation Tax
• FAQs

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What is Corporation Tax?

Corporation Tax is a direct tax levied on the profits of UK limited companies and certain other organisations. It applies to all taxable profits, which include trading profits (from your core business activities), investment income (such as bank interest), and chargeable gains (profits from selling company assets).

Corporation Tax is fundamentally different from Income Tax. Income Tax is paid by individuals — including sole traders and partners — on their personal earnings. Corporation Tax is paid by the company itself as a separate legal entity. This distinction matters because a company's profits are taxed at Corporation Tax rates first, and then any amounts distributed to shareholders as dividends are taxed again under Income Tax at the shareholder's personal rate.

It is important to note that Corporation Tax is a self-assessment tax. HMRC does not send you a bill. Your company is responsible for calculating its own tax liability, filing the return, and paying the correct amount by the deadline.

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Who Must Pay Corporation Tax?

The following entities are required to pay Corporation Tax on their taxable profits:

• UK-registered limited companies (private and public), regardless of size
• Foreign companies with a UK permanent establishment — taxed on profits attributable to that establishment
• Members' clubs, societies and associations carrying on a trade or with investment income
• Co-operatives and community benefit societies
• Housing associations
• Unincorporated associations with taxable income

Dormant companies — those that have had no trading activity or income during the accounting period — generally do not need to pay Corporation Tax. However, they may still need to file a Company Tax Return (CT600) if HMRC issues a notice requiring one. You can inform HMRC that your company is dormant to avoid receiving these notices.

Sole traders and ordinary partnerships do not pay Corporation Tax. Their profits are instead subject to Income Tax and National Insurance through Self Assessment.

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Corporation Tax Rates for 2025/26 and 2026/27

Since 1 April 2023, the UK has operated a two-rate Corporation Tax system. The rates remain unchanged for both the 2025/26 and 2026/27 financial years (confirmed in the Autumn Budget 2025).

Key points:

The £50,000 and £250,000 thresholds are divided equally among associated companies. If your company has one associated company, for example, the lower limit becomes £25,000 and the upper limit becomes £125,000. See the section on associated companies below for details.

The marginal relief fraction is 3/200. This fraction is used in the marginal relief calculation to create a graduated increase between the 19% and 25% rates, so companies are not penalised by a sudden jump in their tax rate when profits cross the £50,000 threshold.

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Marginal Relief Explained

Marginal Relief ensures that companies with profits between £50,000 and £250,000 do not face an immediate jump from 19% to 25%. Instead, the effective tax rate increases gradually.

How the Calculation Works

Marginal Relief = (Upper Limit − Augmented Profits) × Taxable Profits / Augmented Profits × 3/200

The relief is then deducted from the Corporation Tax calculated at the main rate (25%).

Worked Example

A standalone limited company (no associated companies) has taxable profits of £120,000 and no dividend income.

1. Corporation Tax at the main rate: £120,000 × 25% = £30,000
2. Marginal Relief: (£250,000 − £120,000) × £120,000 / £120,000 × 3/200 = £130,000 × 3/200 = £1,950
3. Corporation Tax due: £30,000 − £1,950 = £28,050
4. Effective tax rate: £28,050 / £120,000 = 23.375%

For comparison, a company with exactly £50,000 in profits pays £9,500 (19%), while a company with £250,000 pays £62,500 (25%).

HMRC provides a Marginal Relief calculator to help you check your position.

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How to Register for Corporation Tax

You must register your limited company for Corporation Tax with HMRC within three months of starting any business activity. Business activity includes buying, selling, advertising, employing staff, or renting property — it is not limited to making a profit.

Registration Process

Step 1: You will need your company's Unique Taxpayer Reference (UTR). HMRC normally posts this to your registered office address within a few days of your company being incorporated at Companies House.

Step 2: Register online via HMRC's Corporation Tax registration service. You will need your company's UTR, incorporation date, the date business activity started, and your accounting period end date.

Step 3: HMRC will confirm your registration and set up your company's Corporation Tax record. You will then be able to access your account through HMRC's online services.

If you miss the three-month deadline, HMRC can charge penalties for failure to notify — which are calculated based on the amount of tax due and whether the failure was deliberate.

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How to Calculate Your Corporation Tax Bill

Calculating your Corporation Tax liability involves several stages:

1. Determine your accounting profit. Start with the profit figure shown in your company's statutory accounts (profit and loss statement).

2. Make tax adjustments. Add back any expenses that are not allowable for Corporation Tax purposes (such as entertaining clients, legal fines, or depreciation). Deduct any income that is not taxable (such as exempt dividends from UK companies).

3. Deduct capital allowances. Replace the accounting depreciation figure with the capital allowances your company is entitled to claim (see Capital Allowances below).

4. Deduct any other reliefs. This may include R&D relief, losses brought forward, group relief, patent box relief, or the creative industry tax reliefs.

5. Apply the relevant Corporation Tax rate to the resulting taxable profit figure. If your profits fall within the marginal relief band, apply the marginal relief formula.

Quick Example

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Corporation Tax Deadlines

There are two separate deadlines that every limited company must be aware of: one for paying Corporation Tax and one for filing the Company Tax Return.

Payment Deadline

Corporation Tax must be paid 9 months and 1 day after the end of your accounting period.

Filing Deadline

The Company Tax Return (CT600) must be filed 12 months after the end of your accounting period.

Deadline Examples

Important: If your company's first accounting period is longer than 12 months, you will need to split it into two periods and file two CT600 returns with separate payment deadlines.

Larger companies with taxable profits exceeding £1.5 million (divided by the number of associated companies) must pay through Quarterly Instalment Payments instead.

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How to File and Pay Corporation Tax

Filing Your CT600

All Company Tax Returns must be filed online. You can file through:

• HMRC's online service — suitable for simpler returns
• Commercial accounting software — most popular packages (Xero, FreeAgent, Sage, QuickBooks) can file directly with HMRC
• A professional accountant — who will file on your behalf

Your CT600 must include full company tax computations, and you are required to submit your statutory accounts (in iXBRL format) alongside the return.

Payment Methods

Corporation Tax can be paid through:

• Online or telephone banking (Faster Payments, CHAPS, or Bacs) — using HMRC's bank details and your 17-character Corporation Tax payslip reference
• Direct Debit — set up through your HMRC online account at least three working days before the deadline
• Debit or corporate credit card — via HMRC's online payment service
• At your bank or building society — using your payslip reference

Allow sufficient processing time for each method. Faster Payments arrive the same or next working day. Bacs takes three working days. Direct Debit can take up to five working days.

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Quarterly Instalment Payments

Companies with annual taxable profits exceeding £1.5 million must pay their Corporation Tax through Quarterly Instalment Payments (QIPs) rather than a single payment. The £1.5 million threshold is divided by the number of associated companies (not just 51% group members — a change introduced from 1 April 2023).

QIP Schedule

Payments are due in four equal instalments during the accounting period itself:

Each instalment is based on the company's estimated tax liability for the current year, divided by four. If the estimate turns out to be wrong, the company can adjust later instalments. Any underpayment or overpayment is settled when the final liability is calculated.

Very large companies — those with taxable profits exceeding £20 million (again divided by associated companies) — must pay QIPs even earlier, in months 3, 6, 9 and 12 of their accounting period.

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Corporation Tax Penalties

Late Filing Penalties — Including the April 2026 Increases

From 1 April 2026, fixed penalties for late Corporation Tax returns are increasing significantly. This is the first increase since these penalties were introduced in 1998 and applies to any CT600 with a filing date on or after 1 April 2026.

If a company files late for three consecutive periods, the £100/£200 fixed penalties double to £500/£1,000 per occurrence.

These penalties apply even if no Corporation Tax is owed. Even a dormant company that fails to file on time will be fined.

Late Payment Interest

There are no automatic penalties specifically for late payment of Corporation Tax. However, HMRC charges daily interest on any tax paid after the deadline. As of January 2026, the late payment interest rate is 7.75% per annum (Bank of England base rate + 4%). This is calculated daily from the payment due date until the tax is paid in full.

If you cannot pay on time, contact HMRC as soon as possible. You may be able to arrange a Time to Pay agreement, allowing you to pay in instalments. Setting this up proactively can prevent enforcement action and, in some cases, avoid additional penalties.

Tax Determination

If your return is more than 6 months late, HMRC will issue a "tax determination" — their own estimate of what you owe. You cannot appeal this. You must either pay the amount determined or file your CT600 so that HMRC can recalculate.

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Corporation Tax Reliefs and Allowances

UK Corporation Tax provides numerous reliefs that can significantly reduce your tax bill. Below are the main reliefs available in 2025/26 and 2026/27.

Allowable Business Expenses

Expenses incurred wholly and exclusively for business purposes can be deducted from your taxable profits. Common allowable expenses include staff salaries and pensions, office rent and utilities, business insurance, professional subscriptions, accountancy fees, travel costs, marketing and advertising, and business-related software subscriptions.

Non-allowable expenses that must be added back include client and supplier entertainment, non-business clothing (a suit is not allowable — a branded uniform is), legal fines and penalties, and depreciation (replaced by capital allowances).

Trading Losses

If your company makes a trading loss, several options are available. You can carry the loss back to the previous 12-month accounting period and claim a tax refund. You can carry the loss forward indefinitely against future trading profits (subject to a £5 million annual deduction allowance plus 50% of remaining profits). You can also surrender the loss to other group companies through group relief (for groups with 75% or greater ownership).

Patent Box

Companies that earn profits from patented inventions can elect into the Patent Box regime, which applies an effective Corporation Tax rate of 10% to qualifying profits. This includes income from the sale of patented products, licensing fees, and certain royalties. The patent must be granted by the UK Intellectual Property Office (UKIPO) or the European Patent Office (EPO).

Creative Industry Tax Reliefs

Specific Corporation Tax reliefs are available for companies working in film, high-end television, animation, children's television, video games, theatre, orchestra, and museums and galleries. These typically provide an enhanced deduction or a payable tax credit for qualifying expenditure.

Charitable Donations

Qualifying donations to registered charities (Gift Aid payments) can be deducted from your total profits before calculating Corporation Tax. This includes cash donations and, from April 2026, businesses may also benefit from VAT relief on the donation of trading stock to charities.

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Capital Allowances in 2026

Capital allowances are one of the most powerful tools for reducing your Corporation Tax bill. They replace accounting depreciation (which is not tax-deductible) and provide tax relief on capital expenditure.

Full Expensing (100% First-Year Allowance for Companies)

Introduced permanently from 1 April 2023, full expensing allows companies to deduct 100% of the cost of qualifying new, unused plant and machinery in the year of purchase. This applies to main rate assets only and is not available for second-hand items, cars, or assets bought for leasing. There is no monetary limit.

A 50% first-year allowance is available for qualifying special rate expenditure (such as integral features of buildings and long-life assets).

Annual Investment Allowance (AIA)

The AIA provides 100% relief on up to £1 million of qualifying expenditure per year on plant and machinery, including second-hand and special rate assets (but not cars). The £1 million limit is shared across groups of companies or associated businesses.

The AIA is available to both companies and unincorporated businesses.

New 40% First-Year Allowance (From 1 January 2026)

Announced in the Autumn Budget 2025, a new permanent 40% first-year allowance is now available for qualifying main rate plant and machinery expenditure. This is particularly significant because it extends to:

• Assets purchased for leasing — previously excluded from full expensing
• Unincorporated businesses (sole traders, partnerships, LLPs) — for expenditure from 6 April 2026

The remaining 60% of the cost then enters the main pool for writing-down allowances.

Writing Down Allowances (WDA) — Rate Change from April 2026

Writing down allowances provide annual relief on assets that do not qualify for 100% relief. From 1 April 2026, the main rate WDA is reducing from 18% to 14% per year (reducing balance basis). The special rate remains at 6%.

Zero-Emission Vehicles

A 100% first-year allowance remains available for new zero-emission cars and electric vehicle charge points until 31 March 2027 (for companies) and 5 April 2027 (for unincorporated businesses).

Structures and Buildings Allowance (SBA)

A 3% annual allowance (straight-line) is available on qualifying expenditure for the construction, conversion or renovation of non-residential structures and buildings. Enhanced 10% SBA rates are available within designated Freeport and Investment Zone special tax sites.

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R&D Tax Relief

Research and Development tax relief is a Corporation Tax incentive designed to encourage UK companies to invest in innovation. The regime was significantly reformed for accounting periods beginning on or after 1 April 2024, with the former SME and RDEC schemes merged into a single scheme.

The Merged R&D Scheme (From 1 April 2024)

Under the merged scheme, all qualifying companies can claim an enhanced deduction of 86% above the normal 100% deduction, giving a total deduction of 186% of qualifying R&D expenditure. For loss-making companies, the payable tax credit is calculated at 10% of the surrenderable loss.

R&D Intensive SMEs

Loss-making SMEs that spend at least 30% of their total expenditure on qualifying R&D can claim a higher payable tax credit rate of 14.5% of the surrenderable loss, with an enhanced deduction rate of 186%.

What Qualifies?

Qualifying R&D expenditure includes staff costs for employees directly engaged in R&D, consumable materials, software, data and cloud computing costs (from 1 April 2023), subcontracted R&D costs (with restrictions on overseas subcontractors), and contributions to independent research. The work must seek an advance in science or technology, involve scientific or technological uncertainty, and not be readily deducible by a competent professional in the field.

R&D Advance Clearances

HMRC has expanded the advance clearance service, allowing companies to seek assurance on whether their R&D activities qualify before making a claim. This reduces the risk of rejected claims.

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Year-End Tax Planning Checklist for 2025/26

For companies with a 31 March 2026 year-end, the following planning actions should be considered before the accounting period closes.

1. Review your projected profit position. Determine whether your profits fall below £50,000 (19% rate), within the marginal relief band, or above £250,000 (25% rate). Small changes in taxable profit near these boundaries can significantly affect your tax bill.

2. Maximise allowable expense claims. Ensure all legitimate business expenses have been recorded. Review whether any expenses have been incorrectly omitted or miscategorised.

3. Accelerate or defer income strategically. If you are near a rate threshold, consider whether timing the receipt of income or the recognition of revenue could reduce your effective rate.

4. Claim all available capital allowances. Purchase qualifying plant and machinery before your year-end to claim full expensing or AIA relief. From 1 January 2026, the new 40% FYA is also available.

5. Make pension contributions. Employer pension contributions are a fully deductible business expense. Making contributions before year-end reduces taxable profits while building retirement savings for directors and employees.

6. Review director remuneration and dividends. The most tax-efficient balance between salary and dividends may have changed. The optimal salary level for 2025/26 is typically around £12,570 (the personal allowance) for single-director companies, though this depends on individual circumstances.

7. Consider loss planning. If losses are anticipated, decide whether to carry them back for an immediate refund or carry them forward against future profits.

8. Check R&D and other relief eligibility. Even if you don't think of your company as "innovative," you may qualify for R&D relief if any projects involved technological uncertainty or sought to develop new processes, products, or services.

9. Review bad debt provisions. Write off genuinely irrecoverable debts before the year-end for an immediate tax deduction.

10. Prepare for the filing deadline. Gather all records, reconcile bank accounts, and provide your accountant with complete information well before the deadline to avoid rushed filing and potential errors.

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Key Changes from April 2026

Several significant changes take effect during 2026 that affect Corporation Tax planning.

Late Filing Penalties Double (April 2026)

As detailed above, fixed penalties for late CT600 returns will approximately double. The £100 penalty for returns up to 3 months late becomes £200, and the additional £100 penalty at 3 months becomes an additional £200.

Writing Down Allowance Reduction (April 2026)

The main rate WDA falls from 18% to 14% from 1 April 2026. Companies relying on WDAs rather than AIA or full expensing for their capital expenditure will see slower tax relief going forward.

Diverted Profits Tax (DPT) Repeal (January 2026)

The DPT, charged at 31%, is being repealed for accounting periods beginning on or after 1 January 2026. It is replaced by a simpler corporation tax charge on Unassessed Transfer Pricing Profits (UTPP), subject to a rate six percentage points above the standard Corporation Tax rate.

Transfer Pricing Reforms (January 2026)

From 1 January 2026, new transfer pricing documentation requirements come into effect, including the International Controlled Transactions Schedule (ICTS). The small and medium enterprise exemption from transfer pricing rules is also being narrowed.

EMI Share Option Expansion (April 2026)

The Enterprise Management Incentive (EMI) scheme is being expanded from April 2026, with increased individual and company-level limits, making it more attractive for owner-managed businesses to incentivise key employees.

Corporate Interest Restriction (CIR) Simplification

Simplified CIR rules and new penalty regimes for non-compliance are being introduced during 2026.

Pillar Two — Global Minimum Tax

The UK's implementation of the OECD's global minimum tax (15% minimum effective rate) continues. The first UK Pillar Two filings are due by 30 June 2026 for affected multinational groups with consolidated annual revenue of €750 million or more.

E-Invoicing Consultation

The government has launched consultations on mandatory e-invoicing for UK businesses. While not yet legislated, companies should prepare for potential implementation in the coming years.

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Corporation Tax and Dividends

Corporation Tax is paid on company profits before dividends are distributed. Dividends are not a deductible expense for Corporation Tax purposes.

When a company pays dividends to its shareholders, those shareholders may be liable to Income Tax on the dividend income. For 2025/26, the tax-free dividend allowance is £500, and the rates are:

Note: The higher rate for dividends increases to 35.75% from April 2026.

For director-shareholders of owner-managed companies, the balance between salary and dividends is a key tax planning decision. Drawing a salary up to the personal allowance (£12,570) and NI thresholds, and then taking the remainder as dividends, is typically the most tax-efficient approach — though individual circumstances vary.

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Associated Companies

The concept of "associated companies" is critical because it determines which Corporation Tax rate thresholds apply to your company. The £50,000 small profits threshold and the £250,000 main rate threshold are both divided by 1 plus the number of associated companies.

A company is associated with yours if one controls the other, or both are controlled by the same person or persons. Control is broadly defined and includes ownership of more than 50% of share capital, voting power, or rights to income/assets.

Dormant companies are generally excluded from the associated companies count, provided they have not carried on a trade or business at any point during the relevant accounting period.

Example

A director owns 100% of Company A and 100% of Company B (both trading). Both companies are associated. The thresholds for each are divided by 2:

• Small profits rate applies up to: £50,000 / 2 = £25,000
• Main rate applies above: £250,000 / 2 = £125,000

This means that each company reaches the 25% main rate at profits of £125,000 rather than £250,000.

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Making Tax Digital

Making Tax Digital (MTD) for Corporation Tax is not yet mandated. HMRC has confirmed that MTD requirements for Corporation Tax remain under development and will not be introduced before April 2026 at the earliest. Companies are not required to use MTD-compatible software for Corporation Tax returns at this stage.

However, MTD for VAT is already fully in effect for all VAT-registered businesses, and MTD for Income Tax Self Assessment (ITSA) is being phased in from April 2026 for qualifying self-employed individuals and landlords with income over £50,000.

Companies should still ensure they maintain digital records and use accounting software that can file CT600 returns electronically, as online filing has been mandatory since 2011.

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Frequently Asked Questions

Do dormant companies pay Corporation Tax?

No. If a company is genuinely dormant (no trading activity, no income, no chargeable gains), it has no Corporation Tax to pay. However, it may still need to file a CT600 if HMRC has issued a notice to do so. You can notify HMRC that the company is dormant to stop receiving notices.

Can I pay Corporation Tax in monthly instalments?

Not through a standard arrangement. Corporation Tax is normally due as a single payment 9 months and 1 day after the accounting period end. However, if you cannot afford to pay the full amount, you can contact HMRC to request a Time to Pay arrangement, which may allow you to spread payments. Large companies with profits over £1.5 million pay through quarterly instalments.

Is Corporation Tax paid before or after dividends?

Corporation Tax is paid on company profits before dividends are declared. Dividends are paid from post-tax profits and are not a deductible expense. Shareholders then pay Income Tax on dividends received (above the £500 allowance).

Do I need an accountant for Corporation Tax?

There is no legal requirement to use an accountant. However, Corporation Tax returns are complex and mistakes can lead to penalties, overpayment, or missed reliefs. The cost of a good accountant is typically outweighed by the tax savings they identify. The accountancy fees themselves are a tax-deductible business expense.

What happens if I overpay Corporation Tax?

HMRC will either automatically repay the overpayment with interest (at the repayment interest rate, currently lower than the late payment rate), or you can request a repayment through your HMRC online account. You can also set the overpayment off against other tax liabilities.

What is the Corporation Tax rate for small companies?

Companies with taxable profits up to £50,000 pay the small profits rate of 19%. This threshold is divided by the number of associated companies. If your profits are between £50,000 and £250,000, marginal relief gradually increases your effective rate towards 25%.

When do I need to register for Corporation Tax?

Within 3 months of starting any business activity (not just when you start making a profit). This includes buying or selling goods, employing someone, advertising, or renting a property for business use.

What is a CT600?

The CT600 is the official Company Tax Return form that all UK companies must complete and submit to HMRC. It includes details of the company's income, expenditure, profits, Corporation Tax calculation, and any reliefs claimed. It must be filed online.

Can I reduce my Corporation Tax bill legally?

Yes. Legitimate tax planning is entirely legal and expected. Common strategies include claiming all allowable business expenses, maximising capital allowances, making pension contributions, claiming R&D tax relief where applicable, optimising the timing of income and expenditure, and using loss relief provisions. What is not legal is tax evasion — deliberately misrepresenting your income or expenses to reduce your tax bill.

Does Corporation Tax apply to foreign income?

UK-resident companies are taxed on their worldwide profits. However, most foreign dividends received by UK companies are exempt under the dividend exemption rules. Double Taxation Agreements between the UK and other countries may also provide relief to prevent the same income being taxed twice.

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Disclaimer: This guide is for general information purposes and does not constitute professional tax advice. Tax rules are complex and subject to change. You should always seek advice from a qualified accountant or tax adviser for your specific circumstances. Information is believed to be accurate as of February 2026 based on published HMRC guidance and legislation.