The Complete Guide to UK Corporation Tax for Businesses (2025–26)

Companies are not sent a corporation tax bill, so it is your responsibility to ensure that your company pays tax by the appropriate deadline. There are changes that take place every year in taxation policies. In order to pay the correct sum of tax on time, it is important to stay updated with UK taxation. This business tax guide for 2025–26 explains the different tax rates, allowances, and key updates you should know about, incorporating changes confirmed in the Autumn Budget 2024 and new measures announced in the Autumn Budget 2025 (26 November 2025). The information below will help you plan your taxes accurately.

What is corporation tax?

Corporation Tax is a tax that limited companies and certain other organisations in the UK must pay on their profits, including foreign companies with a UK presence, clubs, cooperatives, and some unincorporated associations. As of the 2025–26 financial year – confirmed in the Autumn Budget 2024 – the main rate remains at 25% for profits exceeding £250,000, while a lower rate of 19% continues to apply to profits at or below £50,000. Companies with profits between these thresholds can benefit from Marginal Relief, which gradually adjusts the effective tax rate between 19% and 25% (with an effective marginal rate of 26.5% in this band).

Businesses must register for Corporation Tax within three months of starting to trade and file a Company Tax Return within 12 months after the end of their accounting period, even if they incur losses. Payment deadlines typically require companies with profits under £1.5 million to pay their tax nine months and one day after the accounting period ends, while larger companies must make quarterly payments based on their taxable profits.

Official resource: Register for Corporation Tax and manage your account via HMRC’s official Corporation Tax portal (gov.uk). Use HMRC’s Marginal Relief calculator to determine your exact liability.

Why is it Essential for Businesses?

Paying corporation tax is essential for businesses in the UK for several key reasons:

• Legal Obligation: Corporation tax is a statutory requirement for all UK-resident companies and certain unincorporated associations. Businesses must pay tax on their profits, similar to how individuals pay income tax on earnings.
• Contribution to Public Services: The revenue generated from corporation tax contributes significantly to public finances. This funding supports essential services such as healthcare, education, and infrastructure.
• Business Credibility: Timely payment of corporation tax enhances a company’s credibility with stakeholders, including investors, customers, and suppliers.
• Support for Growth: Corporation tax rates are structured to support businesses of varying sizes through tiered rates (e.g., 25% for profits over £250,000 and 19% for profits under £50,000).
• Tax Roadmap Certainty: The government published a Corporate Tax Roadmap in October 2024, committing to maintain the 25% main rate and core features of the UK corporation tax system for the duration of this Parliament – giving businesses greater planning certainty.

Who Pays Corporation Tax?

• Limited Companies: All UK limited companies are required to pay corporation tax on their annual profits. This includes profits from trading activities, investments, and asset sales.
• Branches of Overseas Companies: Foreign companies operating in the UK through a branch or office must also pay corporation tax on their UK profits.
• Unincorporated Organizations: Certain unincorporated entities, such as co-operatives, trade and housing associations, and members’ clubs, may also be liable for corporation tax depending on their structure and activities.
• Charities and Other Entities: Some charities and societies can incur corporation tax liabilities if they engage in trading activities that generate profits.
• Large Multinational Groups: From accounting periods beginning on or after 31 December 2023, large multinational groups (with global revenues over €750m) operating in the UK are subject to the new Pillar Two Multinational Top-up Tax (MTT) and Domestic Minimum Top-up Tax (DMTT), ensuring a minimum effective tax rate of 15%. The Undertaxed Profits Rule (UTPR) was enacted in Finance Act 2025 and applies from 31 December 2024. Businesses within scope must register with HMRC. See PwC’s UK Corporate Tax guide for detailed Pillar Two guidance.

Key Steps in Calculating Corporation Tax

1. Determine Total Income

Calculate all sources of income, including sales revenue, investment income, and any interest earned. Example: If total sales income is £100,000 and interest income is £1,000, total income = £101,000.

2. Calculate Allowable Expenses

Deduct all qualifying business expenses from total income to arrive at profit before tax. This includes costs like salaries, rent, utilities, and professional fees. Note that certain expenses, such as client entertainment costs, are not deductible for tax purposes and must be added back to the profit figure.

3. Account for Capital Allowances

Instead of deducting depreciation directly, companies claim capital allowances on qualifying capital expenditures. The capital allowances regime has been updated significantly, see the Deductions and Reliefs section below for the new 40% First-Year Allowance and the reduction in writing-down allowances introduced in the Autumn Budget 2025.

4. Calculate Taxable Profit

Taxable Profit = Total Income − Allowable Expenses + Non-Deductible Items − Capital Allowances

5. Apply the Corporation Tax Rate

The corporation tax rate depends on the level of taxable profits:

• 19% for profits up to £50,000 (Small Profits Rate)
• 25% for profits over £250,000 (Main Rate)
• For profits between £50,000 and £250,000, Marginal Relief applies, producing a gradual effective rate that peaks at 26.5% within the tapered band- higher than the 25% main rate.

Example Calculation

Suppose a company has:

• Total Income: £100,000
• Allowable Expenses: £50,000
• Capital Allowances: £1,200
• Non-Deductible Entertainment Costs: £500

Calculation Steps:

1. Profit Before Tax: £100,000 − £50,000 + £500 = £50,500
2. Taxable Profit after Capital Allowances: £50,500 − £1,200 = £49,300
3. Corporation Tax Due (at 19%): £49,300 × 0.19 = £9,357

This structured approach ensures that all relevant factors are considered when calculating corporation tax liabilities in the UK.

Common Deductions and Reliefs Available to Businesses

Under UK corporation tax, businesses can benefit from a number of deductions and reliefs. Here are the most important ones for 2025–26:

1. Annual Investment Allowance (AIA): The AIA allows businesses to claim a 100% deduction on qualifying capital expenditures up to £1 million in the year of purchase. This includes most types of plant and machinery (new and second-hand). This limit is permanent as of April 2023. See HMRC’s AIA guidance.
2. Full Expensing (100% First-Year Allowance for companies): Introduced in the Finance Act 2024 and made permanent, full expensing allows companies to deduct 100% of qualifying new main pool plant and machinery costs in the first year. It does not apply to leased assets or second-hand assets.
3. 40% First-Year Allowance (from 1 January 2026): Introduced in the Autumn Budget 2025 (Finance Bill 2025-26), a new permanent 40% FYA applies to qualifying new main rate plant and machinery expenditure incurred on or after 1 January 2026. Unlike full expensing, this allowance is available to both companies and unincorporated businesses (sole traders, partnerships) and importantly includes assets purchased for leasing- a major expansion of previous rules. Cars, second-hand assets, and assets leased overseas are excluded. The remaining 60% of the asset’s cost enters the capital allowance pool for future relief. See HMRC’s official guidance on the new FYA.
4. Writing-Down Allowances (WDA) – rate reduced from April 2026: The main rate WDA for plant and machinery on the main capital allowances pool is reducing from 18% to 14% per year, effective from 1 April 2026 for corporation tax (6 April 2026 for income tax). This means businesses with large brought-forward main pool balances will receive tax relief more slowly going forward. For businesses with accounting periods straddling 1 April 2026, a hybrid blended rate applies. The special rate pool WDA remains unchanged at 6%. See detailed guidance on the WDA reduction.
5. 50% First-Year Allowance (Special Rate Pool): Provides a 50% deduction for certain assets in the special rate pool (e.g. integral features, long-life assets) for companies, allowing them to write off a significant portion of capital expenditure in the first year.
6. Zero-Emission Vehicles & EV Charging Points (100% FYA extended): The 100% First-Year Allowance for zero CO₂ emission cars and the purchase and installation of electric vehicle charging points has been extended by a further 12 months – now until 31 March 2027 for corporation tax (5 April 2027 for income tax). This was confirmed in the Autumn Budget 2025.
7. Intangible Assets: Companies can deduct amortisation costs for intangible assets like patents, trademarks, and goodwill. A flat 4% deduction per year is available for non-amortised intangible assets under the fixed-rate regime.
8. Research and Development (R&D) Relief: Following reforms effective from April 2024, the R&D tax relief regime now operates under a merged scheme for most companies: the R&D Expenditure Credit (RDEC) rate is 20% for large companies. For loss-making SMEs, an enhanced SME intensive scheme applies, with a credit rate of 27%. HMRC is widening the use of advance clearances for R&D reliefs, with a targeted R&D advance assurance service being piloted from Spring 2026 for SMEs to gain pre-submission certainty. See HMRC’s R&D relief guidance.
9. Trading Losses: Businesses can carry forward trading losses to offset against future profits, or carry them back up to 12 months to reclaim tax from previous years. Note: losses carried forward exceeding £5 million are subject to a 50% restriction on the amount that can be used in any one year.
10. Interest Expense Deductions: Interest expenses on loans are generally deductible, although restrictions apply under the Corporate Interest Restriction (CIR) rules where a group’s net interest expense exceeds £2 million.
11. Exemptions on Dividends: Most dividend income received by UK companies is exempt from Corporation Tax, as are capital gains from selling shares in trading subsidiaries held for at least 12 months (Substantial Shareholding Exemption).
12. Employer Pension Contributions: Employer contributions to employees’ pension schemes are a fully allowable business expense, reducing taxable profits pound for pound, provided they are “wholly and exclusively” for the purposes of the trade.

Key Dates for Filing and Paying Corporation Tax

 

Corporation Tax Payment Due

• Deadline: 9 months and 1 day after the end of the accounting period.
• Example: For a company with a year-end of 31 March 2026, the payment is due by 1 January 2027.

Corporation Tax Return (CT600) Due

• Deadline: 12 months after the end of the accounting period.
• Example: For the same company with a year-end of 31 March 2026, the return is due by 31 March 2027.

Key Monthly Deadlines (April 2025 – March 2026)

Payment Date	Applicable to companies with year-end in
1 April 2025	June 2024
1 May 2025	July 2024
1 June 2025	August 2024
1 September 2025	November 2024
1 October 2025	December 2024
1 December 2025	February 2025
1 January 2026	March 2025

Quarterly Instalment Payments (QIPs): Large companies with annual taxable profits exceeding £1.5 million must pay corporation tax in four quarterly instalments during their accounting period, rather than as a single payment. The threshold for quarterly instalments is not changing for 2025–26.

Consequences of Late Filing or Payment

As of the 2025–26 financial year, HMRC’s penalty and interest framework for late corporation tax filing and payment remains largely the same as 2024–25, but the interest rate on late payments has been updated to reflect Bank of England base rate changes. Here is the current position:

Penalties for Late Filing

• 1 day late: Automatic penalty of £100. See HMRC’s penalties for late filing.
• More than 3 months late: An additional penalty of £100.
• 6 months late: HMRC estimates your Corporation Tax liability and imposes a penalty of 10% of the unpaid tax.
• 12 months late: A further 10% penalty on any unpaid tax.
• Repeated late filings (3 times in a row): The initial £100 penalties increase to £500 each.

Penalties for Late Payment

• 30 days late: A penalty of 5% of the unpaid tax.
• 6 months late: An additional 5% penalty on any outstanding amount.
• 12 months late: A further 5% penalty on any unpaid tax.

Interest Charges on Late Payment

In addition to penalties, HMRC charges interest on any outstanding tax from the due date until it is paid in full. HMRC’s late payment interest rate is set at base rate plus 4%. Following the Bank of England’s Monetary Policy Committee decision on 18 December 2025 to reduce the base rate to 3.75%, the HMRC late payment interest rate is now 7.75% per annum (accruing daily). Repayment interest (where you have overpaid) is set at base rate minus 1%, with a minimum floor of 0.5%.

Read more about late payments/penalties.

Case Study: Avoiding Penalties through Effective Tax Planning

This case study looks at GreenTech Ltd, an environmental technology company in the UK. In 2023, GreenTech faced cash flow problems and missed its deadline for paying Corporation Tax. As a result, the company incurred penalties and interest on the overdue tax. To resolve this issue, GreenTech partnered with a professional accountancy practice. Together, they created a robust tax planning strategy, including quarterly tax provisions and a dedicated tax savings account. This plan helped GreenTech make timely tax payments and avoid penalties in subsequent years. With the late payment interest rate now at 7.75% per annum, proactive planning is more important than ever: for every £10,000 of unpaid tax, late interest alone amounts to approximately £775 in the first year.

Strategies to Monitor and Reduce Corporation Tax

• Know the Tax Rates: The main corporation tax rate is 25% for profits over £250,000. If your profits are up to £50,000, you pay a lower rate of 19%. There is a gradual increase for profits between these amounts, with an effective marginal rate of up to 26.5% in the tapered band.
• Keep Good Financial Records: Maintain detailed records of all income and expenses. HMRC requires businesses to keep records for at least 6 years after the end of the accounting period (or longer if a compliance check has been opened). Accounting software such as Xero, QuickBooks, or Sage can help automate this.
• Claim All Business Expenses: Claim all qualifying costs related to running your business, including salaries, rent, utilities, travel, subscriptions, and professional fees. Capital items should be claimed through the appropriate capital allowances regime.
• Use Tax Reliefs and Credits: Look into available tax reliefs, including R&D tax credits, the Annual Investment Allowance, the new 40% First-Year Allowance (from January 2026), and full expensing. A qualified tax adviser can identify what reliefs apply to your business.
• Plan for Quarterly Payments: If your profits exceed £1.5 million, you must pay corporation tax in four instalments throughout the year. Plan your cashflow to avoid being caught short.
• Employer Pension Contributions: Making employer pension contributions is one of the most tax-efficient ways to extract value from a company. A £10,000 employer pension contribution saves £2,500 in corporation tax (at the 25% rate) while the full amount goes into the pension.
• Capital Expenditure Planning for 2026: Due to the capital allowances changes taking effect from April 2026, businesses should consider the timing of capital investment carefully. Companies with large main pool balances will receive slower relief under the new 14% WDA, whilst the new 40% FYA from January 2026 provides accelerated relief for qualifying new assets, particularly for leasing businesses and unincorporated businesses that previously could not access full expensing.
• R&D Advance Assurance (from Spring 2026): SMEs should explore HMRC’s new piloted advance assurance service for R&D tax relief claims, which will allow businesses to gain pre-submission certainty on key aspects of their claim before filing, reducing the risk of costly errors or enquiries.

Overview of Recent Changes in UK Corporation Tax Policies

Autumn Budget 2024 (30 October 2024) – Confirmed for 2025–26

Rates confirmed unchanged for 2025–26:

• Main Rate: 25% for profits exceeding £250,000, unchanged.
• Small Profits Rate: 19% for profits up to £50,000, unchanged.
• Marginal Relief continues to apply for profits between £50,000 and £250,000.
• The Corporate Tax Roadmap (published October 2024) commits to maintaining the 25% main rate and the full expensing regime for the duration of this Parliament.
• The 100% FYA for zero-emission cars and EV charging points was extended to 31 March 2026 at Autumn Budget 2024 (later further extended to 31 March 2027 at Autumn Budget 2025).
• Capital gains tax rates for individuals increased (lower rate: 10% → 18%; higher rate: 20% → 24%) from 30 October 2024, though corporate CGT rates remain unchanged.

Autumn Budget 2025 (26 November 2025)- Key Corporation Tax Changes

• Main Rate confirmed at 25% for 2026–27 (Finance Bill 2025–26 legislates this).
• New 40% First-Year Allowance for qualifying new main rate plant and machinery, including leased assets, from 1 January 2026 (permanent).
• Main Rate Writing-Down Allowance reduced from 18% to 14% from 1 April 2026 (corporation tax) and 6 April 2026 (income tax). Hybrid rates apply for straddle periods.
• 100% FYA for zero-emission cars and EV charging points extended to 31 March 2027 (corporation tax).
• R&D advance assurance piloted from Spring 2026 for SMEs.
• Mandatory electronic invoicing for VAT purposes announced from April 2029 (roadmap to be published at Budget 2026).
• Revised carried interest tax regime takes effect from 6 April 2026, moving wholly within the income tax framework.
• Transfer pricing reforms: UK-to-UK TP adjustments exempted; new International Controlled Transactions Schedule (ICTS) introduced for cross-border related-party disclosures; SME exemption narrowed (medium-sized enterprises lose exemption).

Timeline of Corporation Tax Rates

Year	Small Profits Rate (profits ≤ £50,000)	Main Rate (Marginal Relief Band)	Main Rate (profits > £250,000)
2025–26	19%	25% (with Marginal Relief; effective rate up to 26.5% in the band)	25%
2024–25	19%	25%	25%
2023–24	19%	25%	25%
2022–23	19%	19%	19%
2021–22	19%	19%	19%
2020–21	19%	19%	19%

Points to be noted:

• The main rate of Corporation Tax remains at 25% for companies with profits over £250,000.
• The small profits rate remains at 19% for companies with profits up to £50,000.
• Companies with profits between £50,000 and £250,000 can utilise Marginal Relief, calculated using HMRC’s marginal relief formula (Standard Fraction = 3/200 for FY2025). Note that the effective marginal rate in this band is 26.5%- higher than the 25% headline rate- which can surprise businesses planning around the upper threshold.
• The thresholds (£50,000 and £250,000) are divided proportionally where a company has associated companies or a short accounting period. For example, a company with one associate has effective thresholds of £25,000 and £125,000. This is a common planning consideration for owner-managed groups.

A Comparison of Corporation Tax Systems

Country	Main Corporation Tax Rate	Profit Thresholds / Notes
United Kingdom	25% (confirmed through to 2026–27)	19% for profits up to £50,000; 25% for profits over £250,000; Marginal Relief between £50,000 and £250,000 (effective rate up to 26.5%)
United States	21%	No specific thresholds; applies to all corporate income. State taxes additional (avg. ~4–5%).
India	25%	25% for domestic companies; 22% for new manufacturing companies; surcharges apply on higher profits
Germany	~30%	Corporate income tax is 15%, plus a solidarity surcharge of 5.5% on that tax, plus trade tax (Gewerbesteuer) of approximately 14–17% depending on municipality- effective combined rate typically around 30%
France	25%	Applies to all corporate profits (reduced rate for SMEs on first €42,500)
Japan	23.2%	National rate; local taxes add approx 7–8%, giving an effective rate of around 30%
OECD Minimum (Pillar Two)	15%	Global minimum effective rate for large multinationals (revenues >€750m) under OECD Pillar Two rules, implemented in the UK from accounting periods beginning on or after 31 December 2023.

Disclaimer: This guide is for general information purposes only and does not constitute tax or financial advice. Tax rules are complex and subject to change. Always consult a qualified accountant or tax adviser for advice specific to your business. All information is current as of April 2026.

FAQs

Who pays the 25% corporation tax rate?

Companies with taxable profits over £250,000 pay the 25% main rate. This applies for the 2025–26 financial year, confirmed by the Autumn Budget 2024.

What is the corporation tax rate for small companies in 2025–26?

If your company’s taxable profits are up to £50,000, you pay the Small Profits Rate of 19%. There is a gradual increase (Marginal Relief) for profits between £50,000 and £250,000, with an effective marginal rate of up to 26.5% in this band.

Do you pay corporation tax if you make no profit?

No. If your company makes no taxable profit, there is no corporation tax to pay. However, you are still required to file a Company Tax Return (CT600) with HMRC, even if it shows a nil liability or a loss.

Do dividends reduce corporation tax?

No. Dividends are paid from profits after corporation tax has already been applied- they do not reduce your corporation tax bill. However, most dividend income received by a UK company from another company is exempt from corporation tax under the dividend exemption rules.

Can I pay myself a dividend every month?

Yes- you can declare and pay dividends as frequently as monthly, provided your company has sufficient distributable profits (retained earnings) to cover the payment. It is important to document each dividend with a board minute and a dividend voucher.

What is the new 40% First-Year Allowance introduced in 2026?

From 1 January 2026, a new permanent 40% First-Year Allowance (FYA) is available for qualifying new main rate plant and machinery. Unlike full expensing (which is restricted to companies and excludes leased assets), the new 40% FYA is available to both companies and unincorporated businesses (sole traders, partnerships), and importantly covers assets purchased for leasing to UK customers. Cars, second-hand assets, and assets leased overseas are excluded. The remaining 60% of the cost enters the main pool and is relieved at the writing-down allowance rate (14% from April 2026).

How does the writing-down allowance reduction from April 2026 affect my business?

From 1 April 2026, the main rate Writing-Down Allowance (WDA) for the main pool of plant and machinery falls from 18% to 14% per annum on a reducing balance basis. This means tax relief on existing pool balances and assets that do not qualify for the AIA, full expensing, or the new 40% FYA will be received more slowly. Businesses with large brought-forward main pool balances, common in manufacturing, construction, and logistics , will be most affected. For assets qualifying for the AIA or full expensing, there is no change. A hybrid rate applies for accounting periods that straddle 1 April 2026.

What is the HMRC late payment interest rate for corporation tax in 2025–26?

As of December 2025, the HMRC late payment interest rate is set at Bank of England base rate plus 4%. Following the Monetary Policy Committee’s decision on 18 December 2025 to reduce the base rate to 3.75%, the current late payment rate is 7.75% per annum (accruing daily from the day after your deadline). Always check HMRC’s latest interest rate announcements as these change with the base rate.