Corporation Tax Guide: Rates, Allowances & Filing

Corporation Tax Rates 2025/26

UK Corporation Tax has a two-tier structure:

• Small profits rate: 19% on profits up to £50,000
• Main rate: 25% on profits over £250,000
• Marginal relief: Profits between £50,000 and £250,000 are taxed at an effective rate between 19% and 25%

The marginal relief fraction is 3/200, meaning companies in this band pay an effective rate that gradually increases from 19% towards 25%.

What Counts as Profit?

Corporation Tax is paid on taxable profits, which include trading profits, investment income, and chargeable gains. You can deduct allowable business expenses including salaries, rent, utility bills, professional fees, and qualifying capital expenditure through capital allowances.

Key Allowances

Annual Investment Allowance (AIA): 100% deduction on the first £1 million of qualifying plant and machinery expenditure. Full expensing: 100% first-year allowance on qualifying main rate plant and machinery. R&D tax relief: Enhanced deduction for qualifying research and development costs.

Filing and Payment Deadlines

• Corporation Tax return (CT600): Due 12 months after the end of your accounting period
• Payment: Due 9 months and 1 day after the end of your accounting period
• Large companies: Must pay in quarterly instalments

Salary vs Dividends

Directors of owner-managed companies often extract profits through a combination of salary and dividends. The optimal split depends on your personal tax position. Taking a salary up to the NI primary threshold and the rest as dividends is a common strategy.