If your company pulls in profits under £50,000, you pay corporation tax at 19%. When profits climb over £250,000, the rate jumps to 25%, and anything in between gets a tapered rate thanks to marginal relief.
You’ll find clear steps below on working out taxable profits, which rate fits your company, and how marginal relief tweaks the effective rate for those middle profits. I’ll keep things plain: just the reliefs, allowances, and filing rules you need to spot savings and dodge penalties.
Keep this page handy as you check your accounts. The next sections cover calculations, reliefs you might claim, and answers to the most common questions about corporate tax for a Private Limited Company (Ltd) or Public Limited Company (PLC).
Corporation Tax Rates and Calculation for Private and Public Limited Companies
Limited companies pay corporation tax on taxable profits. The rate depends on your profit size, and a sliding relief softens the leap between low and main rates.
Associated companies and special ring-fence rules can change which rate you pay. That’s something to watch out for if your business isn’t a lone wolf.
Corporation Tax Rate Bands and Thresholds
Since 1 April 2023, the main rate for most companies is 25% for profits above £250,000. The small profit rate of 19% covers companies with profits up to £50,000.
Profits between £50,000 and £250,000 get marginal relief, which means your effective rate creeps up gradually. Here are the key numbers:
- Small profit rate: 19% (profits ≤ £50,000)
- Main rate: 25% (profits > £250,000)
- Marginal relief band: £50,000–£250,000
- Special rate for certain investment companies: 20%
These thresholds shrink if you’ve got associated companies. Always use your actual taxable profit after adjustments to figure out your band.
Marginal Relief: How the Sliding Scale Works
Marginal relief cuts the tax rate for profits between £50,000 and £250,000. It’s not just a split; it’s a formula that smooths the jump from 19% to 25%.
Here’s the basic idea:
- Work out your taxable profits.
- If you’re in the marginal band, use the marginal relief formula (HMRC has a calculator for this).
- The relief uses a “standard fraction” (3/200) and the gap between your profit and the lower limit.
If you have associated companies, divide the lower and upper limits by the number of them. That can nudge you out of the small profit rate and shrink your relief.
Calculating Corporation Tax: Step-by-Step Example
(For Illustrative Purposes Only)
- Start with your accounting profit.
- Add back disallowable expenses and remove capital allowances to get taxable profit.
- Check which rate band fits by looking at that taxable profit number.
Example:
- Accounting profit: £120,000.
- After tax adjustments: taxable profit is £110,000.
- This sits in the marginal band, so use the marginal relief formula to get your tax bill.
- Quick method: calculate tax at 25%, then knock off the marginal relief (HMRC’s calculator gives the exact figure).
For straightforward cases, you can estimate by multiplying taxable profit by a rate between 19% and 25%. But for accuracy, always use the official marginal relief calculation.
Impact of Associated Companies on Tax Rates
(For Illustrative Purposes Only)
If you control or link to other companies, HMRC treats them as associated for thresholds. The small profits limit (£50,000) and upper limit (£250,000) are divided by the number of associated companies.
Example effect:
- Two associated companies: small profits limit drops to £25,000 each, upper limit to £125,000 each.
- This can push a company into the main rate or cut marginal relief.
You’ll need to count companies connected by control, shared ownership, or linked directors. Check HMRC’s guidance to confirm association and recalculate thresholds every accounting period.
Tax Reliefs, Allowances and Compliance for Limited Companies
(For Illustrative Purposes Only)
Taxable Profits and Allowable Expenses
Taxable profit starts with your accounting profit, then you adjust for stuff HMRC doesn’t allow. Knock out non-deductible costs such as client entertaining (which is 100% non-deductible for Corporation Tax), personal drawings, and fines. Add these back before tax.
Claim business expenses you incur wholly and exclusively for trade. Usual suspects: staff wages, employer National Insurance, rent, utilities, and professional fees. Keep receipts and payroll records for six years, just in case HMRC asks.
Use capital allowances for plant, machinery, and equipment instead of claiming the whole cost as an expense. The Annual Investment Allowance (AIA) lets you deduct qualifying items up to its limit in the year you buy them. Cars and some special assets have different rules for writing down value.
Key Tax Reliefs and How to Claim Them
(For Illustrative Purposes Only)
If you’re developing new products or processes, you might snag Research and Development (R&D) relief. Small and medium companies can claim enhanced relief or a payable tax credit for qualifying spend. Keep technical records and cost breakdowns to back it up.
Patent Box can shave tax off profits from patented inventions. You’ll need to opt in and show detailed profit allocations to qualifying IP. If you expect big patent income, getting specialist advice is smart.
Loss relief lets you offset trading losses against past or future profits. Carry losses back a year or forward to trim future taxable profits. Stick to HMRC’s rules on grouping losses and submit claims on your corporation tax return.
Claim reliefs on your Company Tax Return (CT600) and keep all your supporting documents. For payable credits or trickier claims, use the extra forms or written claims, and hang onto records for at least six years.
Corporation Tax Registration and Deadlines
(For Illustrative Purposes Only)
You need to register for corporation tax with HMRC within three months of starting to trade, even if you make a loss. Register online using your company UTR and set up your HMRC online account.
File your Company Tax Return (CT600) within 12 months of your accounting period’s end. Pay any corporation tax due within nine months and one day after the period ends. If you file or pay late, expect penalties and interest.
If you can’t pay on time, talk to HMRC about a payment plan. They sometimes offer time-to-pay arrangements if you can show it’s affordable. Keep Companies House records updated, but remember, those changes don’t replace your corporation tax duties.
Caution: If you draw funds from the company that are not classified as salary or dividends, and your Director’s Loan Account remains overdrawn 9 months and 1 day after your year-end, your company must pay Section 455 tax at 33.75% alongside its Corporation Tax bill.
Frequently Asked Questions
What is the current corporation tax rate for a limited company in the UK?
Since 1 April 2023, the main rate is 25% for profits above £250,000. The small profits rate of 19% applies to companies with profits of £50,000 or less.
What tax does a limited company pay?
Your limited company pays corporation tax on its taxable profits. It might also pay VAT, Employer National Insurance, and business rates.
How do you calculate corporation tax for a UK Private Limited Company (Ltd) or Public Limited Company (PLC)?
Start with your company’s accounting profit. Adjust for tax-only items (non-deductible expenses, capital allowances, and disallowable items) to get taxable profits.
Apply the right corporation tax rate to those profits, and factor in marginal relief if your profits fall between the thresholds.
What are the thresholds for different corporation tax rates in the UK?
Profits up to £50,000 get the small profits rate (19%). Profits over £250,000 are taxed at the main rate (25%).
If your profits are between £50,000 and £250,000, marginal relief gradually increases the effective rate.
Can you explain how a limited company is taxed in the UK compared to other company structures?
A limited company pays corporation tax on profits. Owners pay tax on the dividends or salary they take out.
Sole traders and partners pay income tax and national insurance on business profits directly; they don’t pay corporation tax.
What are some common tax allowances and reliefs available to UK limited companies for reducing corporation tax?
Capital allowances let you deduct qualifying capital spend from taxable profits. Loss relief allows you to carry trading losses back or forward to offset against other profits.
R&D tax credits can cut tax bills or provide payable credits for qualifying research and development.
What historic changes to the UK corporate tax rate should limited companies be aware of?
The single 19% rate that stuck around for a few years ended for profits from 1 April 2023. Now, there’s a small profit rate (19%), a main rate (25%), and marginal relief in between.
What taxes do business owners pay?
If you pay yourself a salary, both you and your company handle income tax and national insurance through PAYE.
You’ll also pay income tax on any dividends you take. Sometimes, you might owe capital gains tax if you sell company shares.