Worked Examples
Example: Corporation Tax Calculation with Marginal Relief
A worked example of a UK Corporation Tax calculation for 2025/26 showing taxable profit, marginal relief and the final tax due.
Quick answers
How is Corporation Tax calculated for a small UK company?
Start with accounting profit, add back disallowable items (depreciation, entertaining, fines), deduct capital allowances and reliefs to get taxable profit, then apply 19% if profit is up to £50,000, 25% above £250,000, or use marginal relief in between. Companies with associates have proportionately lower thresholds.
What is the marginal relief fraction?
The marginal relief fraction for 2025/26 is 3/200. The relief is calculated as (£250,000 − taxable profit) × (taxable profit ÷ augmented profit) × 3/200, reducing the headline 25% rate down towards 19% as profits fall.
When is Corporation Tax actually paid?
Corporation Tax is due 9 months and 1 day after the end of your accounting period — usually before the CT600 return itself is filed. Instalment payment rules use adjusted thresholds and exceptions, including associated companies and short periods.
Example: Corporation Tax Calculation
Let's work through a realistic Corporation Tax calculation for a small UK limited company in the 2025/26 tax year.
The company
Acme Widgets Ltd — year ended 31 March 2026.
- Turnover: £420,000
- Operating profit (per accounts): £140,000
- Depreciation in accounts: £12,000
- Bought new machinery: £40,000 (qualifies for full expensing)
- Client entertaining included in costs: £3,000
- Single company, no associates.
Step 1: Adjust accounting profit to taxable profit
Accounting profit £140,000
Add back: depreciation +£12,000
Add back: client entertaining +£3,000
Less: full expensing on machinery −£40,000
─────────────────────────────────────────
Taxable profit £115,000
Step 2: Determine the rate
- Profit £115,000 falls between £50,000 and £250,000 → marginal relief applies.
- Headline rate at this level: 25%.
- Marginal relief fraction: 3/200.
Step 3: Apply marginal relief
Tax at main rate £115,000 × 25% = £28,750
Marginal relief (£250,000 − £115,000) × (£115,000/£115,000) × 3/200
= £135,000 × 3/200 = £2,025
─────────────────────────────────────────
Corporation Tax due £26,725
(Effective rate: 23.24%.)
Step 4: Deadlines
- Pay £26,725 by 1 January 2027 (9 months + 1 day after period end).
- File CT600 by 31 March 2027 (12 months after period end).
Step 5: What if profits had been £40,000?
Below £50,000 → small profits rate of 19% applies, no marginal relief:
£40,000 × 19% = £7,600
Step 6: What if profits had been £300,000?
Above £250,000 → main rate of 25%:
£300,000 × 25% = £75,000
Lessons from this example
- Always add back depreciation and entertaining — these are accounting concepts, not tax.
- Full expensing on new plant and machinery can dramatically reduce taxable profit.
- Marginal relief is automatic for profits between the thresholds — no election needed.
- Pay before you file — Corporation Tax is due before the return is.
This is general guidance for the 2025/26 UK tax year and is not personal tax advice. Always check the latest figures on GOV.UK or speak to a qualified accountant for your situation.
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