Corporation Tax for Small Companies

Since 1 April 2023 the UK has had two main Corporation Tax rates plus a marginal relief band. For most small companies the small profits rate of 19% applies, but the picture changes once you have associated companies or profits creep above £50,000.

The rates (FY 2023 onwards, unchanged for 2025/26)

• Small profits rate: 19% on taxable profits up to £50,000.
• Main rate: 25% on taxable profits over £250,000.
• Marginal relief: smooths the rate between £50,000 and £250,000, giving an effective rate that rises gradually from 19% to 25%.

Standard marginal relief fraction: 3/200.

Worked example

Profit £100,000, no associated companies:

• Tax at main rate: £100,000 × 25% = £25,000
• Less marginal relief: (£250,000 − £100,000) × 3/200 = £2,250
• Corporation Tax due: £22,750 (effective rate 22.75%)

For a full walk-through see the worked Corporation Tax calculation.

Associated companies

The £50,000 and £250,000 thresholds are divided by the number of associated companies plus one.

Two companies in total, including this company, → £25,000 and £125,000 each. Three in total → approximately £16,667 and £83,333. Short accounting periods reduce the limits further.

A company is "associated" if one controls the other, or both are controlled by the same person/group, looking through 12 months. This catches many director-owned company groups.

Payment

• Corporation Tax is due 9 months and 1 day after the end of the accounting period.
• The CT600 is due 12 months after the period end.
• Quarterly instalment payments kick in if profits exceed £1,500,000 (divided by associated companies). Most micro-companies never reach this.

Late payment attracts interest at HMRC published rate; late filing triggers automatic penalties starting at £100.

Reliefs that matter at small-company scale

• Annual Investment Allowance (AIA) — 100% deduction for qualifying plant and machinery up to £1m a year. See Capital allowances and AIA.
• R&D tax relief — under the merged scheme; useful even for very small claims. See R&D tax relief for SMEs.
• Trading losses — carry back 12 months or carry forward indefinitely against future profits.
• Patent Box, creative industry reliefs — narrower but valuable when relevant.

Filing the return

You file:

1. Statutory accounts (often FRS 105 — see Micro-company accounts).
2. Tax computation in iXBRL format.
3. CT600 with the right supplementary pages.

Submission is via HMRC online Corporation Tax service. There is no quarterly Corporation Tax filing — see CT600 vs MTD.

Practical tips

• Track associated companies carefully — directors with multiple Ltds are caught most often.
• Decide dividend vs salary before year-end so the company can plan tax. See Dividends vs salary.
• Keep digital records all year so the CT600 is not a scramble in month 11.

What a small business actually pays

Most director-owned companies with profits under £50,000 pay a flat 19%. On £40,000 of taxable profit that is £7,600 of Corporation Tax, due 9 months and 1 day after the year end.

Corporation Tax is only part of the picture for a small business. A typical owner-managed company also deals with:

• PAYE and National Insurance on any salary taken.
• Dividend tax, paid personally through Self Assessment rather than by the company.
• VAT, once taxable turnover passes the registration threshold.

Only the Corporation Tax element is settled through the CT600.

Cutting the bill legitimately

• Pay a salary through the company — it is a deductible cost that reduces taxable profit.
• Claim employer pension contributions, which are normally deductible in the year paid.
• Claim the Annual Investment Allowance on equipment rather than spreading it over years.
• Keep entertaining separate in your records, since it is never deductible and misclassifying it creates an enquiry risk.

What you need to file

Your CT600 normally needs accounts and a tax computation tagged in iXBRL. Unfiled prepares these from your bank transactions or ready year-end figures and lets you file supported returns directly with HMRC after review and declaration. It checks your company and accounting period before payment and shows HMRC's response.