Corporation tax explained

GOV.UK says taxable profits for corporation tax include the money a company makes from trading, from investments, and from selling assets for more than they cost, known as chargeable gains. Dividends the company pays to its own shareholders do not reduce the bill, because GOV.UK says you "cannot count dividends as business costs" when working out corporation tax. Salaries, on the other hand, are normally an allowable cost.

Taxable profit is not always the same as the profit shown in the accounts, because the tax rules treat some items differently, which is one reason companies use an accountant or software for the return.

The rates for the financial years 2025 and 2026 are the same.

HMRC's manual sets out the marginal relief formula for a company with no associated companies. Taking a 12-month period with taxable profits of £100,000 and no other income that affects the calculation, the steps are:

• corporation tax at the main rate: £100,000 x 25% = £25,000
• marginal relief: 3/200 x (£250,000 minus £100,000) = £2,250
• corporation tax due: £25,000 minus £2,250 = £22,750

This is our own simplified arithmetic, so use HMRC's marginal relief calculator or an accountant for real figures. Two rules can change the result. If the accounting period is shorter than 12 months, the limits are reduced proportionately. And if the company has associated companies, the limits are shared: GOV.UK's example is a company with 3 other associated companies, where the limits are divided by 4 and become £12,500 and £62,500.

Corporation tax works to the company's accounting period, not the tax year. HMRC says payment is usually due 9 months and one day after the end of the accounting period, and the company tax return 12 months after it, so most companies pay before they file. Late returns cost £200 at one day and another £200 at three months, and HMRC late payment interest was set at 7.75% from 9 January 2026.

Larger companies pay earlier. GOV.UK says a company with profits at an annual rate of more than £1.5 million but less than £20 million normally pays in instalments, with some exceptions, and these thresholds are shared out when there are associated companies, by dividing them by the number of associated companies plus one for the company itself. Our guide to limited company filing deadlines puts all the dates together.

A new company can set up corporation tax when it registers with Companies House, or add it later through its business tax account. A company that is not doing business is usually treated as dormant for corporation tax.

The Budget on 28 October 2026 kept the same rates and limits for the 2027 financial year, and also announced changes to capital allowances, including a main rate first-year allowance rising from 40% to 50% for spending on or after 1 January 2027 and the main writing down allowance falling from 14% to 12% from April 2027. These are announced, not yet law. For how corporation tax fits with paying yourself, see paying yourself from a limited company, and our page on accountants for limited companies explains what help is available.