What is Corporation Tax in the UK and How is it Calculated? (2026 Guide)

You know what corporation tax is in the broadest sense; your clients deal with it every year. However, the landscape is evolving rapidly. Marginal relief rules, associated companies, R&D changes, and multiple reliefs all add complexity.

Whether you run a small practice advising owner-managed businesses or you sit in a mid-size firm handling a portfolio of corporate clients, understanding the nuances of the UK corporation tax calculation is central to giving good advice. Let’s walk through it step by step, from the basics right through to reliefs, payment deadlines, and how strategic outsourcing can help you deal with all this in 2026.

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Corporation tax in the UK is a direct tax levied on the trading profits, investment income, and chargeable gains of limited companies and certain other organisations. For the financial year ending April 2026, the main rate stands at 25% for companies with profits above £250,000, a small profits rate of 19% applies to profits under £50,000, and a marginal relief calculation governs the band in between. Companies must file and pay within nine months and one day of their accounting period end.

Who Pays Corporation Tax in the UK?

Corporation tax applies to UK-resident companies, which, for practical purposes, means any limited company incorporated in the UK or a foreign company with a permanent establishment here. The obligation extends beyond trading companies to cover clubs, co-operatives, and membership organisations that generate taxable profits.

You are not dealing with corporation tax for sole traders or partnerships, which fall under income tax. But when your client converts a sole trade into a limited company, corporation tax becomes relevant from the moment of incorporation. It is also worth noting that non-resident landlords operating through a UK property business became liable for corporation tax on their UK property income from April 2020, so that is a cohort of clients who may not always realise they are inside scope.

Key Point: Limited Liability Partnerships (LLPs) are treated as transparent for tax purposes and do not pay corporation tax; their members are taxed individually. It is important not to confuse LLP structures with limited companies when advising clients on which regime applies.

UK Corporate Tax Rates for 2025-26

The current rate structure, which came into effect from 1 April 2023 and continues for the financial year 2025–26, divides companies into three distinct bands depending on their taxable profits. This replaced the flat 19% rate that had applied since 2017, and it is worth making sure every client understands where they sit in the structure.

The thresholds above apply to a twelve-month accounting period. If your client's accounting period is shorter, both limits are time-apportioned proportionally. And this is where the associated companies' rule becomes critically important; those thresholds are divided by the total number of associated companies. So, if a client controls three companies in total, each company's upper threshold drops to £83,333 (£250,000 ÷ 3), and the lower limit falls to £16,667 (£50,000 ÷ 3). This catches a lot of clients who assume the full £250,000 applies to each entity in a group or incorrectly divide by the wrong number of companies.

For the financial year beginning 1 April 2026, HMRC has confirmed these rates remain unchanged. There is no indication at the time of writing that the Chancellor intends to alter the structure ahead of the next spending review, so your planning advice for the near term can proceed based on these rates continuing.

How Is Corporation Tax Calculated? A Step-by-Step Walkthrough

When clients ask you to explain the corporation tax calculation, the simplest way to describe it is this: you start with the company's accounting profit, then adjust it to arrive at taxable profit, apply the correct rate, and deduct any reliefs. The following steps reflect how HMRC expects the computation to flow.

1. Start with Accounting Profit (or Loss)

Take the net profit figure from the company’s profit and loss account for the accounting period

2. Add Back Disallowable Expenditure

Client entertaining, depreciation, certain provisions, and non-qualifying items must be added back

3. Deduct Capital Allowances

Replace depreciation with capital allowances: Annual Investment Allowance (AIA) up to £1,000,000, Writing Down Allowances, and Full Expensing where applicable

4. Apply Other Adjustments and Deductions

Include qualifying R&D expenditure credits, loss relief, interest deductions (subject to Corporate Interest Restriction rules), and group relief

5. Arrive at Taxable Total Profits

This is the figure on which the tax rate is applied. It includes trading profits, property income, and chargeable gains

6. Apply the Correct Rate and Marginal Relief (if applicable)

Use 19% (small profits), 25% (main rate), or compute marginal relief using the HMRC fraction for the middle band

7. Deduct Credits and Arrive at Tax Payable

Subtract Research and Development Expenditure Credit (RDEC), film tax relief, and any other qualifying credits. The result is the corporation tax liability

Understanding the Marginal Relief Fraction

This is the piece that trips up most people, so let’s break it down in detail. When a company's profits fall between £50,000 and £250,000, you apply marginal relief using the following fraction specified by HMRC:

Marginal Relief Formula (2025-26)

Marginal Relief = Fraction × (Upper Limit − Taxable Total Profits) × (Augmented Profits ÷ Taxable Total Profits)

The marginal relief fraction for 2025–26 is 3/200. Augmented profits include franked investment income from non-group companies.

Example – Company with £120,000 Taxable Profits (No Associated Companies)

As the example shows, the effective rate for a company in the marginal band sits comfortably below 25% but above 19%. For clients approaching the upper threshold, this becomes important. Small adjustments in taxable profit can shift them between bands and create meaningful tax savings

Key Reliefs and Allowances That Reduce Your Clients’ Bills

Understanding UK corporate tax rates is only the starting point. Understanding tax rates is only the starting point. The real value lies in identifying and applying the right reliefs. The UK corporation tax regime offers a wide range of these, and staying current with the ones most relevant to your client base is where expertise genuinely shows.

Principal Corporation Tax Reliefs for 2025-26

• Annual Investment Allowance (AIA)

100% first-year deduction on qualifying plant and machinery up to £1,000,000. No time limit is currently set for removal.

• Full Expensing

Permanent 100% first-year allowance for main pool assets; 50% for special rate assets. Introduced April 2023, made permanent from April 2024.

• R&D Tax Credits (RDEC & SME Scheme)

The merged R&D scheme introduced in April 2024 offers a 20% above-the-line credit. Life sciences and certain intensive R&D SMEs retain the Enhanced Rate (27%).

• Trading Loss Relief

Losses may be carried back one year against profits of the same trade or carried forward indefinitely (subject to the 50% restriction above £5 million).

• Group Relief

75%+ group companies may surrender losses, non-trading deficits, and other amounts to a claimant company in the same period.

• Patent Box

Electing companies pay an effective 10% rate on qualifying profits attributable to patented inventions and certain other innovations.

One area worth highlighting specifically for 2025–26 is the R&D merged scheme. Following years of reform, the single merged scheme now broadly aligns the SME and RDEC schemes and applies to expenditure incurred on or after 1 April 2024. If you have clients who were previously on the SME scheme, checking whether they have transitioned correctly and whether they qualify for the enhanced support rate is a valuable review exercise.

A Practical Perspective from Pacific Global Solutions

When you manage a portfolio of corporate clients, running through every available relief for each company can be time-intensive. Many accountancy practices find that outsourcing the detailed computation work, the capital allowance schedules, R&D claim workings, and group relief optimisation to a specialist partner gives them back the time to focus on client relationships and advisory conversations. That is precisely the kind of support Pacific Global Solutions provides to tax and accounting firms across the UK.

Corporation Tax Payment Deadlines: When Does Your Client Need to Pay?

Getting the payment dates right is every bit as important as getting the computation right. Late payment generates interest charges from HMRC at the current rate (which tracks the Bank of England base rate plus 2.5 percentage points), and persistent lateness can attract penalties. The timing depends on whether a company is "large" or not.

Corporation Tax Payment Timeline

• Nine months and one day after period end – Non-large companies

The standard payment deadline. A company with a 31 December 2025 year-end must pay by 1 October 2026.

• 12 months after period end – CT600 filing deadline (all companies)

The company tax return must be filed within twelve months of the end of the accounting period, regardless of company size.

• Quarterly instalment payments – large companies (profits > £1.5m)

Four instalments due at months 7, 10, 13, and 16 of the accounting period. For very large companies (profits > £20m), payments begin two months earlier, months 3, 6, 9, and 12.

• Late payment interest (current rate: Bank of England base rate + 2.5%) - Interest accrues daily from the day after the due date. Ensure clients are aware that underpayments in the instalment regime also attract interest from the instalment due dates.

One point that catches clients out regularly: the £1.5 million threshold for large company quarterly payments is divided by the number of associated companies, using the same logic as the rate thresholds. A group of four companies, each with profits of £400,000, will each exceed their individual threshold of £375,000, meaning they are all within the instalment regime even if each company's standalone profit looks modest.

Filing the CT600: What Goes Where

The CT600 company tax return is the document that pulls all of this together. Your client cannot file it; it is the responsibility of their agent or in-house finance function to submit it via HMRC's online system. A few points to keep in front of you when preparing or reviewing a return.

The supplementary pages are where a lot of detail lives. CT600A captures close company loans and benefits; CT600E handles charities and community amateur sports clubs; CT600L is for R&D credits claimed under both the SME and RDEC schemes, and now the merged scheme. If a client is claiming a large or complex relief for the first time, spending time on the supplementary pages before filing prevents enquiry risk.

HMRC requires the accounts and the tax computation to be filed alongside the return in iXBRL format (Inline eXtensible Business Reporting Language). Ensuring that accounting software produces compliant iXBRL output is a key annual check, as software transitions can often lead to filing errors or non-compliance with HMRC standards.

What Changed in 2024-25 That Still Matters in 2026

Two structural changes from the April 2024 fiscal year continue to affect planning and computation in 2025–26, so they are worth a brief recap.

First, the merged R&D scheme. As noted above, the single scheme replaced the previous dual-track approach, aligning the credit rate at 20% above the line for most companies. The key transition question for clients who had previously claimed under the SME scheme is whether their effective benefit has changed. For some, the merged scheme is more generous; for others, less so. Working through the numbers for each client individually is the only way to give accurate advice.

Second, full expensing became a permanent fixture of the capital allowances regime from April 2024. This means companies investing in qualifying plant and machinery can deduct 100% of the cost in the year of expenditure, with no annual cap (unlike AIA, which has a £1,000,000 ceiling). For clients with significant capital investment programmes, full expensing changes the cash flow profile of large purchases considerably, and it is worth including in any pre-year-end tax planning discussions.

Bringing it All Together

Corporation tax in the UK is not a single rate applied to a single number. It is a layered computation that involves adjusting accounting profit, applying the right rate from a tiered structure, checking for associated company impacts, selecting the best reliefs, and timing payment correctly. Every one of those steps has a nuance, and every client's circumstances are slightly different.

For your practice, staying sharp on the details of the UK corporation tax calculation, the marginal relief fraction, the associated companies rules, the interaction between full expensing and AIA, and the post-merger R&D regime, is the foundation of good corporate advice. Your clients depend on you to know this material cold and to raise the right questions before year-end rather than identifying missed opportunities afterwards.

Many UK practices, both small and mid-size, are finding that partnering with a specialist outsourced accounting provider allows their qualified staff to spend more time on exactly that kind of advisory work, rather than on the production of computations and compliance filings. When volume grows, turnaround times tighten, or staff capacity is stretched. At such crucial moments, having a reliable and technically competent outsourced team to handle the compliance layer is a practical and commercially sensible option, not a compromise on quality.

Frequently Asked Questions

1. What is the difference between corporation tax and income tax?

Corporation tax applies to companies and certain organisations on their profits. Income tax applies to individuals, including sole traders and partners in a partnership, on their personal income. The two regimes are entirely separate, with different rates, reliefs, and filing processes.

2. Does the 25% main rate apply to all UK companies from April 2026?

No. The 19% small profits rate continues to apply to companies with taxable profits of £50,000 or less (adjusted for accounting period length and associated companies). The 25% rate applies above £250,000. The marginal relief band sits between the two.

3. How do associated companies affect the thresholds?

Both the £50,000 lower limit and the £250,000 upper limit are divided by the number of associated companies plus one. If a company director controls three companies, each company's thresholds are quartered. "Associated" is defined by 51% control, either directly or through related parties.

4. Can a loss-making company get a tax refund?

A company cannot receive a cash repayment simply by running at a loss. However, if the loss is carried back against profits from the previous year (a terminal loss can be carried back three years on cessation), the result may be a repayment of tax already paid. Certain R&D credits can also generate payable credits for loss-making companies under the enhanced rate rules.

5. What is the quarterly instalment payment (QIP) threshold for 2026?

Companies whose taxable profits exceed £1.5 million (after dividing by the number of associated companies plus one) must pay by quarterly instalments. Very large companies, those with profits exceeding £20 million, face accelerated instalment dates beginning in month three of the accounting period.

6. Is full expensing better than AIA?