What Is Corporation Tax in the UK? 2026 Guide
- Published: 3 August 2026
- 7 min read
- Running a Business, Tax & VAT
Melody Huang
Author
Melody Huang is a content specialist at Osome, focused on producing expert content that supports UK entrepreneurs. She breaks down complex business topics into accessible, step-by-step advice — from setting up a limited company to managing accounts and planning for long-term growth. Melody’s work makes the blog a go-to resource for businesses looking to thrive in the UK.
Mosan Ali
Reviewer
Mosan Ali is our Accounting Manager based in the UK and has a wealth of knowledge of UK GAAP, VAT, and PAYE. With 12 years of experience crunching numbers and ensuring compliance, he keeps our financial reporting ship-shape. Think of Mosan as our blog's accounting guru. He carefully reviews our UK-focused content, ensuring it's accurate, up-to-date, and packed with helpful tips for UK businesses. Get your taxes right from day one with our informative blog posts.
Corporation tax is the main tax on profits that UK-resident companies and certain associations pay to HM Revenue and Customs (HMRC). Unlike income tax on sole traders, it applies to the legal entity rather than the individual owner, and the rules on registration, calculation, and payment sit entirely with the company. How much a company needs to pay in corporation tax in a given year depends on taxable profit, applicable rates, and any reliefs. Missing a deadline can trigger automatic penalties even when no tax is owed.
Key Takeaways
- Corporation tax is charged on trading profits, investment income, and chargeable gains within each accounting period, with UK-resident companies taxed on worldwide profits.
- The rate is calculated at 19% on profits up to £ 50,000; profits above £ 250,000 are subject to tax at the main rate of 25%, with marginal relief between those thresholds.
- Companies must register with HMRC, file a Company Tax Return (CT600), and pay corporation tax by set deadlines; HMRC does not send a bill.
What Is Corporation Tax?
HMRC's corporation tax definition covers any profit a company makes within an accounting period, after allowable deductions and reliefs. It is a direct tax on incorporated businesses and certain unincorporated associations that is paid to the government.
Sole traders and ordinary partnerships pay income tax instead. Limited companies, foreign companies with a UK branch, and qualifying clubs or co-operatives fall within the corporation tax regime. Corporation tax liability in England, Wales, and Scotland follows the same UK-wide rules administered by HMRC. A limited company is a separate legal person, so its profits belong to the company until paid out as salary or dividends.
Corporation tax compliance depends on accurate bookkeeping, timely filings, and proper use of available reliefs. Osome's accounting services help UK companies manage their finances, prepare statutory accounts, and file tax returns with HMRC, reducing administrative workload and helping businesses stay compliant.
Who Pays Corporation Tax?
Corporation tax is payable by every UK limited company on its annual profits. Several other organisation types may also face a corporation tax liability even without full incorporation.
- Limited companies registered at Companies House may be liable.
- Foreign companies with a UK branch or office, are subject to tax only on UK activities.
- Clubs, co-operatives, and other unincorporated associations, such as community groups or sports clubs that operate effectively as a business.
- Housing associations and members' clubs that carry on a trade or business.
Sole traders and ordinary partnerships do not pay corporation tax; they report business income through Self Assessment instead. Directors remain legally responsible for ensuring returns are filed and tax reaches HMRC on time, even when a business accountant prepares the figures.
If a company has stopped trading but remains registered, it may still need to file returns or tell HMRC it is dormant for Corporation Tax to avoid penalties.
What Do You Pay Corporation Tax On?
Profits are the income streams that HMRC taxes, minus allowable costs deducted when calculating each stream. What you pay UK corporation tax on falls into three categories: trading profits, investment income, and gains.
- Profits from selling goods or services in the ordinary course of business.
- Investment income, such as interest and certain returns on company assets.
- Gains when the company disposes of an asset for more than its tax value.
UK-resident companies pay Corporation Tax on their worldwide profits from the UK and abroad. Non-resident companies are subject to UK Corporation Tax on specific UK-sourced income, primarily profits attributable to a UK permanent establishment, income from a UK property business, and gains from disposing of UK land.
Taxable profits from trading and investment income
Trading profit is revenue from everyday business activity minus day-to-day costs such as wages, rent, and stock. Investment income covers returns on company assets, including bank interest and other investment earnings. Capital spending on equipment follows capital allowances rules rather than a full immediate write-off, though the Annual Investment Allowance can be a major benefit by giving a full deduction for qualifying equipment purchases.
In addition to AIA, the Full Expensing allowance allows companies to immediately deduct the cost of qualifying new plant and machinery investments, further reducing taxable profits. Some commercial property capital expenditure may also qualify for capital allowances. Qualifying employee share schemes can also obtain a corporation tax deduction.
Accounting Manager
Chargeable gains
Chargeable gains catch many directors by surprise because they sit outside normal trading accounts. A gain arises when the company sells an asset for more than its tax value, and that money is taxed separately from trading income under rules for asset disposals.
Common examples include:
- Selling vans, machinery, or other equipment for more than its original acquisition cost (not the written-down value after capital allowances).
- Disposing of commercial property or land owned by the company.
- Selling shares in another company where the proceeds exceed the acquisition cost.
If capital allowances were claimed on an asset, a balancing charge may apply on disposal, which can increase profit that can be taxed even when the sale price seems modest.
Sole traders pay capital gains tax personally on asset sales. Limited companies include chargeable gains within corporation tax instead.
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What Are the Corporation Tax Rates?
The different rates for paying corporation tax depend on how much profit a company makes in its accounting period. From 1 April 2023, a tiered structure replaced the flat 19% rate.
Profit band | Rate | Notes |
|---|---|---|
| Up to £ 50,000 | 19% | Small profits rate |
| Between £ 50,000 and £ 250,000 | Marginal relief applies | Effective rate rises gradually toward 25% |
| Over £ 250,000 | 25% | Pay corporation tax main rate |
These thresholds apply to a full 12-month accounting period. For financial years starting 1 April 2025 and 1 April 2026, the small profits rate remains 19%, and the main rate remains 25%, according to HMRC rates and allowances. Thresholds are divided by the number of associated companies plus one and proportionately reduced for shorter accounting periods.
Companies with profits between £ 50,000 and £ 250,000 pay tax calculated at the 25% main rate, then receive marginal relief that reduces the bill. Separate rules apply to ring-fence profits from the UK continental shelf. HMRC's marginal relief calculator is the simplest way to work out the exact amount.
Example
A Manchester-based limited company has taxable profit of £ 105,000 and no associated companies. Tax at the main rate is £ 26,250 (£ 105,000 × 25%). Marginal relief of £ 2,175 reduces the bill to £ 24,075, an effective rate of 22.9%. Use HMRC's calculator to confirm figures for your own accounting period.
How Can Corporation Tax Be Reduced Legally?
Corporation tax is charged on taxable profit, not turnover — so anything that lawfully reduces profit cuts the bill before rates apply.
- Allowable expenses: Costs incurred wholly and exclusively for the business (staff, rent, professional fees, qualifying travel) reduce trading profit if supported by records.
- Director salary and employer NIC: Salary and Employer NICs paid through payroll are company expenses; they lower a corporation tax bill but trigger personal income tax and NIC on the director.
- Employer pension contributions: Payments into a registered pension scheme are usually deductible for the company and not taxed as a benefit to the employee in the same way as salary.
For worked examples and planning pitfalls, see how to legitimately reduce your corporation tax.
How Is Corporation Tax Calculated and Filed?
HMRC, as a government tax authority, does not issue a corporation tax bill. The company must keep records, calculate its own liability, pay on time, and file a return confirming the figures.
- Begin the registration process for different Corporation Tax rates within three months of starting to trade, either by registering at Companies House incorporation or afterwards online.
- Follow the Company Tax Return process for each accounting period: prepare accounts and tax computations, then submit them with the Company Tax Return (CT600) via HMRC's online service.
- Calculate profit eligible for tax and any reliefs, then work out corporation tax payable.
- Pay the tax or report that nothing is owed by the deadline.
- Submit the CT600 by the return deadline, even if the company made a loss.
The exact details needed depend on the company's accounting period and records.
The figure for corporation tax can differ from the profit shown in statutory accounts because of add-backs, disallowable expenses, and timing differences on capital items. The final corporate tax payable figure appears on the Company Tax Return (CT600) and must be settled or reported to HMRC before the deadline passes.
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When Are Corporation Tax Deadlines?
Payment and filing deadlines are not the same date, which catches out many first-time company directors.
Obligation | Deadline |
|---|---|
| Corporation tax payment | 9 months and 1 day after the end of the accounting period |
| Company Tax Return (CT600) | 12 months after the end of the accounting period |
| HMRC registration | Within 3 months of starting to trade |
For a company with a 31 March year-end, corporation tax is due on 1 January and the return by the following 31 March; these dates run from the company’s accounting period, not the wider financial year.
Late filing starts at a £ 200 fixed penalty from April 2026 and can escalate beyond fixed charges to estimated tax charges if the return remains outstanding after six months; in some cases, penalties can range from 0% to 100% of the tax owed.
How Is Corporation Tax Paid?
Payments must reach HMRC by the deadline using the company's 17-character reference. Faster Payments and CHAPS usually clear on the same day or the next day; Bacs and direct debit take up to three working days.
If a deadline has already been missed, contact the Corporation Tax helpline promptly. HMRC may agree a Time to Pay arrangement if the company cannot settle the full amount immediately.
How Osome Can Help
Running a limited company means juggling bookkeeping, payroll, and HMRC deadlines alongside day-to-day trading. Osome brings those tasks onto one platform with automated categorisation, real-time dashboards, and expert UK accountants who understand corporation tax filing.
Whether newly incorporated or switching providers, Osome handles accounts, prepares the Company Tax Return, and keeps deadlines visible as the business grows.
Summary
Corporation tax is charged on trading income, investments, and chargeable gains within each accounting period. Rates run from 19% on profits up to £ 50,000 to 25% above £ 250,000, with marginal relief in between. Register with HMRC within three months of trading, calculate the bill via HMRC's marginal relief calculator, and confirm the final amount on the Company Tax Return (CT600) before the nine-month payment date.
Melody Huang is a content specialist at Osome, focused on producing expert content that supports UK entrepreneurs. She breaks down complex business topics into accessible, step-by-step advice — from setting up a limited company to managing accounts and planning for long-term growth. Melody’s work makes the blog a go-to resource for businesses looking to thrive in the UK.
