Practise UK Corporation Tax calculations for 2026/27: small profits rate (19%), main rate (25%), and marginal relief for profits between GBP 50,000 and GBP 250,000.
Corporation Tax is charged on the profits of UK limited companies, overseas companies with UK permanent establishments, and certain other bodies. The 2026/27 rates are: 19% (small profits rate) for profits at or below GBP 50,000; 25% (main rate) for profits above GBP 250,000; and marginal relief for profits between GBP 50,000 and GBP 250,000 (the "marginal relief band"). Marginal relief was reintroduced from April 2023 when the main rate rose from 19% to 25%. The marginal relief formula is: MR = F x (U - A) x (N/A), where F is the marginal relief fraction (3/200), U is the upper limit (GBP 250,000), A is the augmented profits (total profits plus grossed-up qualifying distributions), and N is the taxable total profits before relief. This formula gives a reduction in the corporation tax liability that ensures the effective rate rises smoothly from 19% to 25% as profits move from GBP 50,000 to GBP 250,000. The effective CT rate at GBP 150,000 (the mid-point) is approximately 24% with marginal relief. Associated companies complicate matters: the limits (GBP 50,000 and GBP 250,000) are divided by the number of associated companies, so two associated companies each have limits of GBP 25,000 and GBP 125,000. This drill covers all three question types with worked calculations to build confidence in CT computations.
The UK has two main Corporation Tax rates for 2026/27: the small profits rate of 19% for companies with taxable profits at or below GBP 50,000, and the main rate of 25% for companies with profits above GBP 250,000. Companies with profits between GBP 50,000 and GBP 250,000 benefit from marginal relief, giving an effective rate that rises smoothly from 19% to 25% across that range.
Step 1: calculate CT at 25% on the full profits (e.g. GBP 100,000 profits = GBP 25,000 CT). Step 2: calculate marginal relief = (3/200) x (GBP 250,000 - augmented profits) = (3/200) x (GBP 250,000 - GBP 100,000) = 0.015 x GBP 150,000 = GBP 2,250. Step 3: CT due = GBP 25,000 - GBP 2,250 = GBP 22,750. Effective rate = GBP 22,750 / GBP 100,000 = 22.75%.
CT at 25% = GBP 37,500. Marginal relief = (3/200) x (GBP 250,000 - GBP 150,000) = 0.015 x GBP 100,000 = GBP 1,500. CT due = GBP 37,500 - GBP 1,500 = GBP 36,000. Effective rate = GBP 36,000 / GBP 150,000 = 24%. The mid-point of the marginal relief band produces an effective rate of exactly 24%.
Two companies are associated if one controls the other, or if both are under common control (for example, the same individual owns more than 50% of each company). The existence of associated companies divides the GBP 50,000 and GBP 250,000 limits equally between them. With 3 associated companies, each company's limits become GBP 16,667 and GBP 83,333. This means smaller businesses in group structures reach the 25% rate much sooner than standalone companies.
For companies with annual profits below GBP 1.5 million (not part of a large group), Corporation Tax is due 9 months and 1 day after the end of the accounting period -- so for a 31 March 2027 year end, payment is due by 1 January 2028. Large companies (profits over GBP 1.5 million) must pay by quarterly instalments, starting 6 months and 13 days into the accounting period. HMRC charges interest on late payments from the due date.
Yes -- salaries paid to directors are a deductible business expense that reduces the company's taxable profits, as long as they are reasonable and commercially justified for the work done. A common tax planning strategy for owner-managed companies is to pay a director's salary of around GBP 12,570 per year (the personal allowance threshold) to avoid income tax, whilst keeping NI costs low, and to extract further profits as dividends, which are taxed at lower rates than salary.
No -- the GBP 1,000 trading allowance is only available to individuals (sole traders and partnerships), not to limited companies. Limited companies pay Corporation Tax on all taxable profits after allowable expenses and reliefs. Companies can claim capital allowances (including 100% full expensing on qualifying plant and machinery), R&D tax relief, and other CT reliefs to reduce their taxable profits, but not the personal trading allowance.
R&D tax relief allows qualifying companies to claim additional deductions or credits for expenditure on qualifying research and development. From April 2024, the main scheme is the merged R&D expenditure credit (RDEC) scheme at a 20% above-the-line credit rate, available to most companies. Loss-making SMEs can claim an enhanced support rate with a 27% credit. R&D must relate to genuine innovation in science or technology -- routine work, cosmetic improvements, and social science research do not qualify. Claims are made through the Corporation Tax return (CT600).
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