Corporation tax returns and planning for UK limited companies

What are the corporation tax rates for 2026/27?

For the financial year that started on 1 April 2026, companies pay 19% on taxable profits of £50,000 or less and 25% on profits over £250,000. Companies in between pay the 25% main rate reduced by marginal relief. These rates have applied since 1 April 2023 (GOV.UK: corporation tax rates and allowances).

• Next year is already set: Finance Act 2026 fixes the same 25% main rate, 19% small profits rate and 3/200 marginal relief fraction for the financial year starting 1 April 2027 (Finance Act 2026, section 12).
• Investment companies: a close investment-holding company, such as a close company that just holds investments, pays 25% on all its profits and cannot use the small profits rate or marginal relief (HMRC CTM03951).
• Non-UK resident companies cannot use the small profits rate or marginal relief, although a UK permanent establishment may still qualify where a tax treaty's non-discrimination article applies (HMRC CTM03905).

How does marginal relief work?

If your company's profits fall between £50,000 and £250,000, it pays the 25% main rate, reduced by marginal relief. HMRC's formula is:

Marginal relief = 3/200 × (£250,000 − augmented profits) × (taxable profits ÷ augmented profits)

Augmented profits are your taxable profits plus any qualifying exempt dividends received from companies outside your group (HMRC CTM03905). Most owner-managed companies receive no such dividends, so augmented and taxable profits are the same and the last part of the formula drops out.

The effect is that every pound of profit between £50,000 and £250,000 is taxed at an effective 26.5%, which is higher than the 25% main rate. The 3/200 fraction is the 1.5% difference between the two (HMRC CTM03925). This matters when you decide whether to leave profit in the company or pay it out.

HMRC's own example is for a period ending 30 September 2026: taxable profits of £90,000 and augmented profits of £98,000 give main rate tax of £22,500, less marginal relief of £2,094, so £20,406 to pay.

Associated companies and short accounting periods

The £50,000 and £250,000 limits are divided by the number of associated companies plus one. Companies are associated if one controls the other or both are under the same control. A company with one associated company therefore has limits of £25,000 and £125,000, and a company with three has limits of £12,500 and £62,500 (GOV.UK: marginal relief).

An associated company counts even if it was associated for only part of the accounting period. One that carried on no trade or business at any time in the period, or in the part of it when it was associated, is ignored.

For an accounting period shorter than 12 months, the limits are reduced in proportion, so a 9-month period has limits of £37,500 and £187,500 (HMRC CTM03930). Where both rules apply, both reductions are made.

How is corporation tax calculated for a limited company?

Corporation tax is worked out on the company's taxable profit for its accounting period: 19% if profits are £50,000 or less, 25% if they are over £250,000, and 25% less marginal relief in between. The table shows the corporation tax on different levels of profit for a 12-month accounting period starting on 1 April 2026, for a company with no associated companies and no dividend income. These are our own calculations using HMRC's rates and marginal relief formula. For your own figures, try our corporation tax calculator.

Compare £50,000 with £100,000: the extra £50,000 of profit adds £13,250 of tax, which is 26.5%. The same works in reverse. A £10,000 deductible cost saves £2,650 of corporation tax for a company in the marginal band, compared with £1,900 at 19% and £2,500 at 25%. That is why timing spending, pension contributions and salary around the year end can be worth more than people expect.

How can I reduce my company's corporation tax bill?

By making sure every allowable cost is claimed and by timing the deductible decisions before your year end. Corporation tax is charged on taxable profit, so anything that lawfully reduces that profit reduces the tax. The main levers for a small company are:

• Claim every allowable expense. Costs incurred wholly and exclusively for the trade are deductible, and where a cost has more than one purpose, the identifiable business part can still be claimed (Corporation Tax Act 2009, section 54). Revenue costs from up to 7 years before trading started count too.
• Use capital allowances. Equipment, machinery and vans can usually be deducted in full in the year you buy them through the £1 million Annual Investment Allowance or full expensing (see capital allowances).
• Pay a salary and employer pension contributions. Both are normally deductible, unlike dividends, although salary brings its own income tax and National Insurance (see salary, dividends and pension).
• Plan before the year end. In the marginal relief band, each £1,000 of deductible cost saves £265, so timing matters most there.

Some costs never reduce the bill. Capital items are not deductible as expenses (section 53) and get capital allowances instead, and business entertainment, such as hospitality for clients, is generally not deductible (section 1298). Spending money only to save tax rarely makes sense either: £1,000 of cost saves at most £265.

When is corporation tax due and when must I file my CT600?

Most companies must pay corporation tax 9 months and 1 day after the end of their accounting period, and file the Company Tax Return (CT600) within 12 months of it. The payment deadline comes first (GOV.UK: pay corporation tax; GOV.UK: company tax returns).

Registering a new company

You must tell HMRC your company is active and register for corporation tax within 3 months of starting to do business, which is when its first accounting period begins. That is wider than starting to trade: GOV.UK says doing business includes buying, selling, advertising, renting a property and employing someone (GOV.UK: trading and non-trading). A company that rents premises or advertises before its first sale may already be on the clock. Most companies can set up corporation tax when they incorporate at Companies House. Our guide to setting up a limited company covers the other first steps.

Filing the CT600

The return is filed online with your accounts and tax computations in iXBRL format. HMRC's free "File your accounts and Company Tax Return" service closed on 31 March 2026, so since 1 April 2026 every company has needed commercial software. Paper returns are accepted only with a reasonable excuse or when filing in Welsh (GOV.UK: closure of the free filing service). If HMRC has sent a notice to deliver a return, you must file even if the company made a loss or has no tax to pay.

Do large companies pay in instalments?

Yes. A company with taxable profits over £1.5 million is "large" and pays in four quarterly instalments. For a 12-month period the first falls 6 months and 13 days after the period starts and the last 3 months and 14 days after it ends. For the year 1 January to 31 December 2026, the dates are 14 July 2026, 14 October 2026, 14 January 2027 and 14 April 2027 (GOV.UK: paying in instalments).

• The £1.5 million threshold is divided by the number of associated companies plus one.
• No instalments are needed in the first year a company is large if its profits are no more than £10 million and it was not large in the previous 12 months, or in any year its total liability is under £10,000.
• Companies with profits over £20 million are "very large" and pay on earlier dates.
• HMRC charges interest of 6.25% on underpaid instalments and pays 3.50% on overpaid ones (rates since 29 December 2025).

What are the penalties for a late corporation tax return?

A CT600 filed even one day late costs £200, and the penalties grow the longer it stays outstanding. These amounts apply to returns with a filing date on or after 1 April 2026, when the fixed penalties doubled (GOV.UK: penalties for late filing).

Tax paid late also carries interest. HMRC charges late payment interest at the Bank of England base rate plus 4%, which has been 7.75% since 9 January 2026. If you overpay, HMRC pays repayment interest at base rate minus 1% (2.75% since 9 January 2026) (GOV.UK: HMRC interest rates). Both rates move when base rate changes.

Which capital allowances can my company claim?

Most companies can deduct the full cost of equipment, machinery and vans in the year they buy them, through the £1 million Annual Investment Allowance or full expensing. Cars are the main exception.

Timing matters. Buying qualifying equipment just before your year end brings the deduction into that year, which is worth most when profits sit in the 26.5% marginal band. The cash still leaves the business, though, so only buy what you would have bought anyway. The zero-emission car allowance is due to end on 31 March 2027 for companies, so a planned electric company car is worth discussing before then.

New companies can also claim revenue costs incurred in the 7 years before trading started, as if they were paid on the first day of trading, as long as they would have been allowable once the trade began (Corporation Tax Act 2009, section 61).

How do salary, dividends and pension contributions affect corporation tax?

Most director-shareholders take a mix of a salary through payroll, which the company can normally deduct for corporation tax, and dividends, which are paid out of profits after corporation tax and taxed at lower personal rates. The dividend ordinary and upper rates rose by 2 percentage points on 6 April 2026, to 10.75% and 35.75%, while the additional rate stayed at 39.35%, so plans set before then are worth rechecking (GOV.UK: tax on dividends).

National Insurance figures are from GOV.UK's rates and thresholds for employers 2026 to 2027, income tax bands from Income Tax rates and Personal Allowances, and the annual allowance from HMRC's pension schemes rates.

• Salary runs through payroll: a director's salary is paid under PAYE, so the company normally needs to register as an employer with HMRC before the first payday, even if the director is the only person it pays, and then report each payment to HMRC on or before payday (GOV.UK: register as an employer). Our payroll services cover director-only payroll as well as staff.
• Employment Allowance: eligible employers can take up to £10,500 off their employer National Insurance bill in 2026/27, but not a company whose only director is also the only employee liable for employer National Insurance (GOV.UK: Employment Allowance eligibility).
• Scotland: Scottish taxpayers have their own income tax bands on salary but pay the UK dividend rates shown above.
• Dividends need profits: a company must not pay out more in dividends than its available profits from current and previous years, and dividends cannot be counted as a business cost for corporation tax (GOV.UK: taking money out of a limited company).

Because dividends can only come from profit that has already borne corporation tax, at an effective 26.5% in the marginal relief band, the order in which you take salary, dividends and pension contributions makes a real difference. Our guide on how to pay yourself as a director walks through the usual approach, and our tax savings calculator shows what the right mix could save you.

What is the s455 tax rate on an overdrawn director's loan account?

If your director's loan account is overdrawn and the balance is not repaid within 9 months of the company's year end, the company pays s455 tax on the amount still owed. The rate depends on when the loan was made, and is 35.75% for loans made on or after 6 April 2026 (HMRC CTM61505).

The rate is tied by law to the dividend upper rate for the tax year in which the loan is made, which is why it rose with dividend tax in April 2026 (Corporation Tax Act 2010, section 455). You may still see 33.75% quoted: that is the right rate for loans made between 6 April 2022 and 5 April 2026, but not for new ones.

• No s455 tax is due if the loan is repaid, released or written off within 9 months of the year end.
• If it is due, it is payable with the corporation tax, 9 months and 1 day after the end of the accounting period in which the loan was made, and reported on the CT600A supplementary page.
• Once the loan is repaid the tax can be reclaimed, but only from 9 months and 1 day after the end of the accounting period in which it was repaid, and any interest charged on the tax is not refunded (GOV.UK: director's loans).
• Repaying just before the deadline and then borrowing the money straight back can be caught by anti-avoidance rules.
• Separately, if loans to you total more than £10,000 at any point in the tax year and you pay less interest than HMRC's official rate (3.75% from 6 April 2026), the loan is a taxable benefit, reported on a P11D with Class 1A National Insurance for the company (GOV.UK: loans to employees).