Corporation Tax Rates UK (2025/26): What Rate Does Your Company Pay?

Corporation tax rates in the UK changed significantly in April 2023. Understanding which rate applies to your company — and how marginal relief works — can make a real difference to your tax planning.

Current Corporation Tax Rates

From 1 April 2023 onwards (including the 2025/26 financial year):

Which Rate Applies to You?

It depends on your augmented profits — broadly, your taxable trading profits plus any investment income and chargeable gains.

If augmented profits are £50,000 or less: You pay the small profits rate of 19%.

If augmented profits are over £250,000: You pay the main rate of 25%.

If augmented profits are between £50,001 and £250,000: You pay 25% minus marginal relief, resulting in an effective rate between 19% and 25%.

Historical Corporation Tax Rates

From 2017 to 2023, all companies paid a flat 19% regardless of profit. The two-rate system returned in April 2023, reintroducing the concept of marginal relief for the first time since 2014.

How Marginal Relief Works

For companies with profits between £50,000 and £250,000, tax is calculated at the main rate (25%) and then reduced by marginal relief.

Formula: Marginal Relief = 3/200 x (£250,000 - Taxable Profit)

Effective Rates Through the Band

Each additional pound of profit within this band is taxed at an effective marginal rate of 26.5%.

How Associated Companies Affect Your Rate

If your company has associated companies, the £50,000 and £250,000 thresholds are divided by the total number of associated companies (including yours).

Example with 2 associated companies:

• Small profits threshold: £50,000 / 2 = £25,000
• Upper threshold: £250,000 / 2 = £125,000

This means a company with just £30,000 in profits would be in the marginal band if it has one associated company — paying an effective rate higher than 19%.

What Counts as Associated?

Companies are associated if one controls the other, or both are under common control (typically through majority shareholding). Dormant companies with no trading activity may be excluded.

Accounting Periods Spanning 1 April

If your accounting period straddles 1 April (the date financial year rates change), profits are time-apportioned between the two financial years.

In practice, this mainly mattered for the transition year (accounting periods spanning 1 April 2023). For ongoing periods, as long as the rates remain unchanged, the apportionment makes no difference.

Corporation Tax vs Other Business Taxes

Corporation tax is only paid by limited companies. Sole traders pay income tax instead. The combined corporation tax + dividend tax burden on a limited company director is typically lower than the income tax + NICs paid by a sole trader at the same profit level.

Tax Planning Considerations

Profit Splitting

If you're close to the £50,000 threshold, timing expenses (e.g., making capital purchases before year-end) can keep you in the lower band.

Salary vs Dividends

Your director's salary reduces the company's taxable profit. Setting salary at an optimal level can keep corporation tax lower while minimising personal NICs.

Pension Contributions

Employer pension contributions reduce taxable profits and don't attract NICs — one of the most tax-efficient ways to reduce your corporation tax bill.

Capital Allowances

Claiming the Annual Investment Allowance (AIA) on qualifying equipment can significantly reduce taxable profits in the year of purchase.

Summary

The UK currently operates a two-rate corporation tax system: 19% for profits up to £50,000, 25% for profits over £250,000, and a marginal relief band in between. Most micro-entities will pay at or near the 19% rate.