Corporation Tax for Small Businesses: Rates, Reliefs, and Filing

The Accounted Business Team·13 March 2026·7 min read

Corporation Tax is the tax your limited company pays on its profits. Since April 2023, the rate you pay depends on how much profit your company makes. If you run a small business, understanding the different rates, the marginal relief band, and your filing obligations can save you real money and keep you out of trouble with HMRC.

This guide covers everything a small business owner needs to know about Corporation Tax for accounting periods falling within the 2025/26 financial year.

The Two Rates

There are now two main Corporation Tax rates:

Small Profits Rate — 19%

If your company's taxable profits are £50,000 or below, you pay Corporation Tax at 19%. This is the rate most small limited companies will pay.

Main Rate — 25%

If your company's taxable profits are above £250,000, you pay the main rate of 25%.

The Marginal Relief Band — £50,000 to £250,000

If your profits fall between £50,000 and £250,000, you are in the marginal relief band. You do not simply pay 25% on everything. Instead, marginal relief gradually increases the effective rate from 19% to 25% as profits rise through this band.

The effective marginal rate within this band is 26.5%. That means for every extra pound of profit between £50,000 and £250,000, you are effectively paying 26.5p in Corporation Tax. This is higher than the main rate of 25% because of how the marginal relief formula works — it claws back the benefit of the lower rate on the first £50,000.

How Marginal Relief Is Calculated

The formula is:

Marginal relief = (Upper limit - Profits) x Profits / Profits x 3/200

In practice, you do not need to calculate this by hand. HMRC's online services and any decent accounting software will work it out for you. But understanding the principle helps you plan.

Example: Your company makes £100,000 profit.

Without marginal relief, you would pay 25% on £100,000 = £25,000.

With marginal relief, the calculation gives you relief of £2,250. So your actual CT bill is £25,000 minus £2,250 = £22,750. That is an effective rate of 22.75%.

Example: Your company makes £60,000 profit.

CT at 25% would be £15,000. Marginal relief gives back £2,850. Actual CT bill: £12,150. Effective rate: 20.25%.

The Associated Companies Rule

Here is the catch that trips up many business owners. The £50,000 and £250,000 thresholds are divided by the number of associated companies you have, plus one.

Two companies are associated if one controls the other, or if both are controlled by the same person or persons. Dormant companies count unless they have been dormant for the whole accounting period and were not active at any point.

Example: You have two active limited companies. The thresholds are halved:

Small profits rate applies up to £25,000 (instead of £50,000)
Main rate applies above £125,000 (instead of £250,000)
Marginal relief band runs from £25,000 to £125,000

This means if each company makes £40,000 profit, both are in the marginal relief band — even though £40,000 would normally qualify for the small profits rate. The effective tax rate on each company is higher than 19%.

If you have dormant companies sitting on the Companies House register, consider closing them down if they serve no purpose. They could be costing you money through the associated companies rule.

What Counts as Taxable Profit?

Your taxable profit is your total income minus allowable expenses and capital allowances. This includes:

Trading profits (revenue minus allowable business expenses)
Investment income (bank interest, rental income held in the company)
Chargeable gains (profit on selling assets)

Allowable expenses include salaries, rent, utilities, materials, professional fees, marketing costs, and all the other legitimate business costs covered in our expenses guide. Capital allowances give you tax relief on equipment, vehicles, and other capital spending.

The more legitimate expenses you can claim, the lower your taxable profit, and the less Corporation Tax you pay. This is why accurate bookkeeping matters — not just for compliance, but for your bottom line.

Payment Deadlines

Standard Payment

Most small companies must pay their Corporation Tax within nine months and one day after the end of their accounting period.

If your company's year end is 31 March 2026, your CT payment is due by 1 January 2027.

If your year end is 31 December 2025, payment is due by 1 October 2026.

Miss the deadline and HMRC charges interest from the day after the due date. The interest rate as of early 2026 is 7.25%, which adds up quickly on a large bill.

Quarterly Instalment Payments (QIPs)

If your company's CT liability exceeds £10,000 and its taxable profits are above the upper limit (£250,000, divided by associated companies), you must pay in quarterly instalments rather than in one lump sum.

The instalments are due in months 7, 10, 13, and 16 of the accounting period. For a 31 March year end:

First instalment: 14 October (month 7)
Second instalment: 14 January (month 10)
Third instalment: 14 April (month 13)
Fourth instalment: 14 July (month 16)

For most small companies making under £250,000, QIPs do not apply. But if you have associated companies bringing down the thresholds, check whether you fall into the QIPs regime.

Filing Your Company Tax Return (CT600)

Every company must file a Corporation Tax return (CT600) with HMRC, even if it made a loss or had no income.

The Deadline

You must file your CT600 within 12 months of the end of your accounting period. So for a 31 March 2026 year end, the filing deadline is 31 March 2027.

Note that the filing deadline (12 months) is later than the payment deadline (9 months and one day). You must pay the tax before you file the return.

What Is Included

Your CT600 must be filed online and include:

Your company tax computation
Full statutory accounts (known as iXBRL tagged accounts)
Any supplementary pages that apply (for example, if you have loans to participators)

Most small companies use an accountant or accounting software to prepare and file the CT600. Filing it yourself is possible, but the iXBRL tagging requirement makes it impractical without the right tools.

Late Filing Penalties

| How Late | Penalty | |---|---| | 1 day late | £100 | | 3 months late | Another £100 | | 6 months late | 10% of unpaid tax (HMRC estimate) | | 12 months late | Another 10% of unpaid tax |

If you file late three times in a row, the £100 penalties increase to £500 each. And do not forget, interest runs on any unpaid tax regardless of penalties.

Reliefs Worth Knowing About

Annual Investment Allowance (AIA)

Your company can claim 100% tax relief on up to £1 million of qualifying plant and machinery in a year. For most small businesses, this means you get full relief on equipment purchases in the year you buy them.

Research and Development (R&D) Relief

If your company spends money on qualifying R&D, there are generous tax reliefs available. The rules changed significantly from April 2024 with the merged R&D scheme, offering an enhanced deduction of 86% on qualifying R&D costs, or a 14.5% tax credit for loss-making companies. The rules are complex, so get specialist advice.

Trading Losses

If your company makes a loss, you can carry it back one year against profits of the same trade, or carry it forward indefinitely against future profits. This can generate a tax refund or reduce future tax bills.

Employment Allowance

Companies can claim up to £10,500 off their employer NIC bill. This is not available to single-director companies with no other employees, but if you employ at least one other person, you may qualify.

Practical Tips for Small Businesses

Keep your accounting period consistent. Changing your year end without good reason creates complications and can lead to short accounting periods with different rules.

Separate business and personal spending. Everything going through your company bank account should be a business transaction. Mixing personal spending in makes your accounts messy and creates potential tax problems.

Track expenses in real time. The end-of-year scramble to find receipts and reconstruct spending is how deductions get missed. Using Accounted throughout the year means Penny categorises your transactions as they happen, so when it comes time to calculate your profit, every allowable expense is already accounted for.

Plan for the tax bill. Set aside a percentage of your profits each month so the CT bill does not come as a shock. A good rule of thumb for small companies is to save 19% to 20% of your monthly profit.

Accounted keeps your company finances clear and organised all year round. Penny handles the bookkeeping automatically, so when Corporation Tax time comes, you have accurate profit figures and a complete expense record ready to go. Start your free trial and see how much easier tax season can be.

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