Corporation Tax (CT) is the UK tax on limited-company profits. Since April 2023 the UK has had two headline rates plus a marginal band in between, making the arithmetic meaningfully harder than the flat-rate era. For any UK Ltd beyond a few thousand in annual profit, understanding CT is non-optional.
Main, small-profit and marginal rate
From April 2023 there are three zones. Which zone applies depends on your taxable profits (not turnover):
| Taxable profit | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small Profits Rate — simple flat rate |
| £50,001 – £250,000 | 26.5% on the band | Main rate less Marginal Relief (MR) |
| Over £250,000 | 25% on whole profit | Flat main rate |
The marginal band — why 26.5%?
If profits are between £50k and £250k, the main rate of 25% applies but Marginal Relief reduces it. The maths yields a nominal 19% on the first £50k and an effective 26.5% on every pound above it, up to £250k. At exactly £250k, average tax reaches 25%.
Worked example — £150,000 profit:
- Provisional CT at 25% = £37,500
- Less MR: (£250,000 − £150,000) × 3/200 = £1,500
- Net CT = £36,000 (effective 24%)
Associated companies — the thresholds get divided
The £50k/£250k thresholds are divided by the number of associated companies (typically companies under common control). Two associated companies share £25k/£125k thresholds. Three share £16,667/£83,333. Etc.
This replaced the pre-2015 "associated companies" rule that was repealed. It's back specifically because the rate structure made single-company ownership too easy to exploit.
- "Control" is broad — 50%+ of shares, voting rights, or profits on winding-up.
- Connected persons (spouses) can create association through overlapping ownership in certain cases.
- Dormant companies and passive-holding structures don't count.
- Check before setting up a new company alongside an existing one — a sibling LLP or Ltd can drag your rates up.
When CT is due and filed
CT is due 9 months and 1 day after the end of your accounting period. Your CT600 return is due 12 months after year-end. So for most Ltds, CT payment is before the return is filed.
- Small companies pay in one lump 9 months + 1 day after YE.
- Large companies (taxable profits over £1.5m, adjusted for associated) pay quarterly instalments.
- Very large companies (over £20m) pay on an accelerated quarterly schedule.
- Late payment interest is ~7% (linked to Bank Rate).
- Returns are filed via HMRC's CATO portal or accounting software with an iXBRL layer.
What's deductible
Generally, expenses "wholly and exclusively" for the trade are deductible. Key categories:
- Staff costs — salaries, employer NI, pension contributions, bonuses.
- Director salary — tax-deductible to the company (reduces CT by 19–26.5p per £).
- Director pension — employer contributions to a director's SIPP are fully deductible up to sensible levels. No Annual Allowance penalty at the company level.
- Use of home — formal director's home-office claim (£6/week flat OR proportionate actual costs).
- Training & subscriptions — CPD in your field is normally allowed.
- Entertainment — staff entertainment deductible up to £150/head/year (all-or-nothing). Client entertainment is NEVER deductible.
- Capital allowances — plant, equipment, and EVs get specific allowances. Full Expensing gives 100% write-down in year for most new equipment.
- R&D Relief — qualifying R&D gets enhanced deduction (SME or RDEC scheme). Rules tightened post-2024. Director exits eventually hit Capital Gains Tax on share sale and Inheritance Tax on the estate — plan ahead for both.
Dividends are paid after CT
One of the most common misunderstandings among new company directors: dividends come out of after-tax profit. The sequence is:
- Company earns £100k profit.
- Corporation tax at ~19% = £19,000 paid.
- Distributable reserves: £81,000.
- Dividend declared from reserves: up to £81,000.
- Shareholder pays dividend tax personally (0% / 8.75% / 33.75% / 39.35%).
See the UK dividend tax guide and the dividend tax calculator.