Corporation Tax Guide UK Small Business 2026

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Introduction

If you run a UK limited company, Corporation Tax is one of the most important obligations you’ll deal with — and one of the easiest to get wrong if you don’t understand how it works. Unlike sole traders (who pay Income Tax through Self Assessment), limited companies pay Corporation Tax on their profits, and the rules changed meaningfully in recent years.

This guide explains, in plain English, how Corporation Tax works for UK small businesses in 2026: the current rates, the deadlines, what you can deduct, the reliefs worth knowing about, and how to actually file. It’s written for company directors who want to understand their obligations — not accountants — so we’ve kept the jargon to a minimum.

What Is Corporation Tax?

Corporation Tax is a tax on the profits of limited companies (and some other organisations). If your business is a limited company registered at Companies House, you pay Corporation Tax on:

• Trading profits — the money you make from your core business activities
• Investment income — such as interest or dividends the company receives
• Chargeable gains — profits from selling company assets for more than they cost

Sole traders and ordinary partnerships don’t pay Corporation Tax — they pay Income Tax on their profits through Self Assessment. Corporation Tax applies specifically to incorporated businesses.

There’s no bill sent to you: Corporation Tax is a “self-assessed” tax, meaning it’s your responsibility to work out what you owe, pay it, and file a return — even if your company made no profit or was dormant, if HMRC has issued a notice to file.

Corporation Tax Rates 2026/27

Since April 2023, Corporation Tax has been charged at more than one rate depending on your company’s profit level. The rates for the 2026/27 tax year are unchanged from that reform:

• Small profits rate — 19% on taxable profits up to £50,000
• Main rate — 25% on taxable profits over £250,000
• Marginal relief on profits between £50,000 and £250,000, which tapers the effective rate between 19% and 25%

So a company with profits of £40,000 pays 19%. A company with profits of £400,000 pays 25%. A company with profits in between benefits from marginal relief.

How marginal relief works

Marginal relief exists to smooth the jump between the two rates, so there’s no sudden cliff-edge at £50,000. For profits between £50,000 and £250,000, you calculate tax at the main 25% rate and then subtract a marginal relief amount.

The important thing to understand is the effective rate. Because relief is gradually withdrawn as profits rise through the band, each additional pound of profit between £50,000 and £250,000 is effectively taxed at 26.5% — slightly higher than the headline 25% main rate. This is worth bearing in mind if your profits are near the top of the band.

HMRC provides a free marginal relief calculator on GOV.UK, and most accounting software works the relief out for you.

Associated companies reduce the thresholds

If you control more than one company, the £50,000 and £250,000 thresholds are divided by the number of associated companies. So if you have two associated companies, each one’s small profits threshold drops to £25,000 and the upper limit to £125,000. The thresholds are also reduced proportionally for accounting periods shorter than 12 months.

(A note for property and investment companies: “close investment-holding companies” — broadly, companies that mainly hold investments rather than trade — pay the 25% main rate on all profits and can’t use the small profits rate or marginal relief.)

Corporation Tax Deadlines

Corporation Tax has a set of deadlines that catch a lot of directors out — partly because, unusually, you have to pay before you file.

• Register for Corporation Tax: within 3 months of starting to trade (you can do this online with HMRC).
• Pay your Corporation Tax: 9 months and 1 day after the end of your accounting period. For a company with a 31 March year-end, that’s 1 January.
• File your Company Tax Return (CT600): within 12 months of the end of your accounting period.

Yes — the payment deadline (9 months and 1 day) comes before the filing deadline (12 months). Most companies work out and pay their bill when they prepare their accounts, well before the return is due.

Companies with profits over £1.5 million pay in quarterly instalments rather than a single payment, on a different schedule.

How to File Your Corporation Tax Return

Here’s an important 2026 change: HMRC’s free online Corporation Tax filing service closed permanently on 31 March 2026. Previously, small and dormant companies could file their CT600 and accounts using HMRC and Companies House’s joint free tool. That’s gone.

You now have two options:

1. Use approved commercial software — most accounting packages (such as QuickBooks, Xero, or FreeAgent), or dedicated CT600 filing software, can file your return electronically.
2. Engage an accountant to prepare and file it for you.

For many small companies, this change means either paying for filing software or using an accountant where they previously filed for free — worth budgeting for.

Corporation Tax is filed to HMRC (the CT600 return), while your annual accounts are also filed to Companies House. Both have their own deadlines, and both increasingly require commercial software.

What Can You Deduct? Allowable Expenses

You only pay Corporation Tax on your profits, so understanding what you can legitimately deduct directly reduces your bill. The general rule is that an expense must be incurred wholly and exclusively for the purposes of your business.

Common allowable expenses include:

• Staff salaries, pensions, and employer’s National Insurance
• Rent, utilities, and business premises costs
• Office supplies, software, and equipment
• Business travel and accommodation (not ordinary commuting)
• Professional fees (accountants, solicitors)
• Marketing and advertising
• Business insurance
• Bank charges and interest on business loans

Some costs are specifically not deductible for Corporation Tax — most notably client entertaining, and any expenditure that isn’t genuinely for the business. Directors’ salaries are deductible; dividends are not (they’re paid out of post-tax profit).

Capital Allowances: Deducting Equipment and Assets

When you buy larger assets — equipment, machinery, vehicles, computers — you usually can’t just deduct the full cost as a normal expense. Instead, you claim capital allowances. The main ones for 2026 are:

• Annual Investment Allowance (AIA): 100% relief on up to £1 million of qualifying plant and machinery each year. For most small businesses, this covers all their equipment purchases.
• Full expensing: a 100% first-year allowance that lets companies deduct the full cost of qualifying new main-rate plant and machinery in the year of purchase, with no annual cap. (This applies to limited companies, not sole traders.)
• Writing-down allowances (WDA): for assets not fully covered above, you deduct a percentage of the value each year. Following the Autumn Budget 2025, the main-pool writing-down allowance reduced from 18% to 14% from April 2026; the special-rate pool remains at 6%.

Because full expensing and the AIA are so generous, most small companies can write off the whole cost of their equipment in the year they buy it. Always check the current rates and rules at GOV.UK, as capital allowances are an area that changes with Budgets.

Reliefs Worth Knowing About

Beyond expenses and capital allowances, several reliefs can reduce your Corporation Tax bill:

• R&D tax relief — if your company works on genuine research and development (resolving scientific or technological uncertainty), you may qualify for enhanced relief under the merged R&D scheme.
• Loss relief — if your company makes a loss, you can generally carry it back against the previous year’s profits, or forward against future profits, to reduce tax.
• Group relief — companies within a group can, in some circumstances, share losses.

These reliefs have detailed conditions, and R&D relief in particular has faced tighter HMRC scrutiny — so they’re an area where professional advice usually pays for itself.

Is Corporation Tax Part of Making Tax Digital?

Not yet. Making Tax Digital (MTD) currently applies to VAT, and is being rolled out for Income Tax Self Assessment (which affects sole traders and landlords, not companies). Corporation Tax is not yet part of MTD — there’s no mandatory digital-record-keeping or quarterly-reporting requirement for company profits, and no confirmed start date.

That said, with HMRC’s free CT600 tool now closed, companies are effectively being pushed towards digital, software-based filing anyway. Keeping clean digital records in accounting software is sensible regardless.

Penalties: What Happens If You’re Late

HMRC charges penalties for late filing of your Corporation Tax return:

• 1 day late: £100
• 3 months late: another £100
• 6 months late: HMRC estimates your bill and adds a 10% penalty on the unpaid tax
• 12 months late: another 10% of the unpaid tax

Late payment also accrues interest, charged daily from the day after the payment deadline. Given the penalties and interest, it’s worth setting reminders well ahead of both deadlines — or having an accountant manage them.

Practical Tips for Small Business Owners

• Set money aside as you go. Keep roughly the right proportion of profit in a separate account so the bill doesn’t come as a shock nine months later.
• Watch the marginal relief band. If your profits are near £250,000, remember the effective 26.5% rate on profits in the band, and plan the timing of income and expenses where you can.
• Claim everything you’re entitled to. Allowable expenses and capital allowances directly reduce your bill — good record-keeping throughout the year makes this far easier.
• Mind the associated company rules. If you run more than one company, your thresholds are shared.
• Budget for filing. With HMRC’s free tool gone, factor in software or accountancy costs.

FAQ

What is the Corporation Tax rate for a small business in 2026?

For the 2026/27 tax year, companies with profits up to £50,000 pay the small profits rate of 19%. Companies with profits over £250,000 pay the main rate of 25%. Profits between those thresholds are subject to marginal relief, giving an effective rate that rises through the band (with an effective marginal rate of 26.5% on profits in that range). These rates are unchanged from the April 2023 reform.

When do I have to pay Corporation Tax?

Corporation Tax is due 9 months and 1 day after the end of your company’s accounting period. Unusually, this is before your Company Tax Return (CT600) is due, which is 12 months after the period end. Companies with profits over £1.5 million pay in quarterly instalments instead.

Can I still file my Corporation Tax return for free?

No — HMRC’s free online Corporation Tax and accounts filing service closed permanently on 31 March 2026. You’ll now need to use approved commercial software (such as an accounting package) or engage an accountant to file your CT600 electronically.

Do dormant companies pay Corporation Tax?

A dormant company with no taxable profit won’t have Corporation Tax to pay, but if HMRC has issued a notice to file, you must still submit a Company Tax Return. It’s important to tell HMRC if your company becomes dormant, and to keep your filings up to date to avoid penalties.

How can I reduce my Corporation Tax bill legally?

The main routes are claiming all allowable business expenses, making the most of capital allowances (the Annual Investment Allowance and full expensing let you write off equipment quickly), using reliefs like R&D tax relief where you qualify, and paying yourself efficiently through a mix of salary and dividends. A qualified accountant can help you structure this properly for your situation.

Conclusion

Corporation Tax isn’t as complicated as it first appears, but the details matter — and getting the rates, deadlines, and reliefs right can make a real difference to what your company pays and whether you avoid penalties. The headline points for 2026: profits under £50,000 are taxed at 19%, over £250,000 at 25%, with marginal relief in between; you pay 9 months and 1 day after your year-end and file within 12 months; and HMRC’s free filing tool has closed, so you’ll need software or an accountant.

Because tax rules change with each Budget and every company’s situation is different, this guide is a starting point rather than a substitute for advice. For anything beyond the basics — or if your profits are near the marginal relief thresholds, you run multiple companies, or you’re claiming significant reliefs — it’s well worth speaking to a qualified accountant.

This article is for general information only and does not constitute tax or financial advice. Tax rules change and depend on your individual circumstances — always confirm current rates and rules at GOV.UK and consult a qualified accountant or tax adviser before making decisions.