Limited company

Corporation Tax in 2026/27: The Complete Guide

Corporation tax is one of the most significant costs a UK limited company faces, yet many directors still do not fully understand how their rate is calculated or what steps can legally reduce the amount they pay. With a two-tier rate structure that has now been in place for several years, the system is more nuanced than it once was, and the difference between careful planning and none at all can easily run into thousands of pounds.

This guide sets out everything a UK limited company owner needs to know about corporation tax rates UK 2026/27, how marginal relief works, and the practical year-end strategies that can make a real difference to your tax bill.

This guide covers:

The corporation tax rates that apply in 2026/27 and what determines which rate your company pays
How marginal relief is calculated between £50,000 and £250,000 profit
The impact of associated companies on your thresholds
Year-end planning strategies to legitimately reduce your liability
Common mistakes that lead to companies overpaying

The Two Corporation Tax Rates in 2026/27

Since April 2023, the UK has operated a two-rate corporation tax system. For the 2026/27 tax year, the rates remain:

Small profits rate: 19% — applies to companies with taxable profits of £50,000 or less
Main rate: 25% — applies to companies with taxable profits above £250,000

These thresholds sound straightforward, but the boundary between them is where most confusion arises. A company with profits of exactly £49,000 pays 19%, while one with profits of £260,000 pays 25% on the whole amount. What happens in the middle is where the concept of marginal relief becomes important.

It is also worth noting that the thresholds apply to your "augmented profits", which include not just your taxable profits but also dividends received from non-group companies. For most owner-managed businesses this distinction will not matter, but it is worth being aware of.

How Marginal Relief Works

Companies with profits between £50,000 and £250,000 do not simply switch from 19% to 25%. Instead, they benefit from marginal relief, which tapers the effective rate gradually across that range.

The mechanics work as follows: the company first calculates corporation tax at the main rate of 25%, then deducts a marginal relief fraction. That fraction is currently set at 3/200, applied to the difference between the upper threshold (£250,000) and the company's augmented profits.

The formula is:

Marginal relief = (£250,000 − augmented profits) × 3/200

Worked example:

Blue Horizon Ltd has taxable profits of £120,000 for the year ending 31 March 2027.

Tax at main rate: £120,000 × 25% = £30,000
Marginal relief: (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950
Corporation tax payable: £30,000 − £1,950 = £28,050
Effective rate: approximately 23.4%

As profits increase towards £250,000, the marginal relief reduces and the effective rate approaches 25%. As profits fall towards £50,000, the effective rate approaches 19%. The relief effectively creates a marginal rate of approximately 26.5% on profits within that band, meaning every additional pound of profit between £50,000 and £250,000 costs slightly more in tax than profits above or below the band.

This is a critical consideration for corporation tax planning limited company owners should not overlook.

Associated Companies and Reduced Thresholds

One aspect of the system that catches many company owners off guard is the associated companies rule. If you own or control more than one company, or if multiple companies are under common control, the £50,000 and £250,000 thresholds are divided equally among all associated companies.

Two associated companies each have thresholds of £25,000 (small profits rate) and £125,000 (main rate). Three associated companies each have thresholds of £16,667 and £83,333 respectively.

HMRC's definition of "associated" is broad and covers situations where the same person, or persons together, have control. Family members' companies can count, and HMRC can look through shareholding structures. If you have a property holding company alongside a trading company, both could be considered associated, meaning each company hits the main rate at a much lower profit level than you might expect.

This is particularly relevant for limited company owners who have set up multiple entities over the years without considering the combined tax effect. A review of your company structure by a qualified accountant can identify whether associated company rules are increasing your effective rate.

Year-End Corporation Tax Planning Strategies

The period approaching your company's year end is the most valuable window for legitimate corporation tax planning limited company owners have. Once the accounting year closes, the options narrow considerably.

Timing of expenditure. Bringing forward planned business expenditure into the current accounting year reduces taxable profits for that period. This could include purchasing equipment, renewing software licences, commissioning professional services, or accelerating staff bonuses. Any expenditure must be genuinely incurred for business purposes to be deductible.

Capital allowances. The Annual Investment Allowance (AIA) currently allows companies to claim 100% first-year relief on qualifying plant and machinery expenditure up to £1,000,000. For a company sitting in the marginal relief band, a well-timed capital purchase can shift profits below £50,000 and down to the 19% rate.

Pension contributions. Employer pension contributions are deductible for corporation tax purposes, provided they are paid before the year end and meet HMRC's "wholly and exclusively" test. For a director-shareholder, this is one of the most tax-efficient ways to extract value from the company while reducing the corporation tax liability. Contributions above the annual allowance for the individual (currently £60,000 gross in 2026/27) can trigger a personal tax charge for the director, so planning is required.

Director remuneration. Salary and bonuses paid to directors are corporation tax-deductible, provided they are commercially justifiable. Accruing a bonus before the year end, even if it is paid shortly after, can reduce profits for the earlier period — but the rules on timing require care, and HMRC has challenged arrangements where bonuses were accrued but not genuinely committed to.

Worked example of year-end planning:

Clearwater Consulting Ltd has profits of £200,000 before a planned pension contribution of £30,000 to the director's SIPP. The year end is 31 March 2027.

Without the contribution: tax at 25% less marginal relief of (£250,000 − £200,000) × 3/200 = £750. Tax = £50,000 − £750 = £49,250
With the £30,000 pension contribution: taxable profits fall to £170,000. Tax at 25% less marginal relief of (£250,000 − £170,000) × 3/200 = £1,200. Tax = £42,500 − £1,200 = £41,300
Tax saving: £7,950 from a single legitimate pension contribution

When Corporation Tax Is Due and How to Pay

Corporation tax is due nine months and one day after the end of the accounting period for companies not subject to the quarterly instalment payment regime. For a company with a year end of 31 March 2027, payment is due by 1 January 2028.

Larger companies — those with annual profits above £1.5 million, adjusted for associated companies — must pay by quarterly instalments, with the first instalment falling seven months before the end of the accounting period. This catches some growing SMEs by surprise, so it is important to know which regime applies to your company.

A company tax return (CT600) must also be filed with HMRC within twelve months of the accounting period end. Filing late attracts automatic penalties, even if tax is paid on time.

Common Mistakes That Lead to Overpaying

Several patterns appear repeatedly in the accounts of companies that are paying more corporation tax than necessary:

Not tracking the year-end date actively, and therefore missing the window for legitimate pre-year-end planning, is the most common. Many directors only think about corporation tax when the accountant presents the completed accounts, by which point the opportunities have passed.

Failing to claim all available capital allowances is another frequent issue. The rules around what qualifies, how to calculate the allowance, and when to use the AIA versus the main pool require detailed knowledge to apply correctly.

Overlooking the associated companies rules leads to companies paying the main rate when they believe they are on the small profits rate, resulting in unexpected underpayments and HMRC interest charges.

Finally, not considering the interaction between the director's personal income tax position and the company's corporation tax liability can result in a suboptimal overall tax outcome. Corporation tax planning limited company owners undertake should always be considered alongside personal tax planning.

How Blue Tick Can Help

Blue Tick works with limited company owners throughout the year, not just at the filing deadline, to ensure corporation tax is planned proactively rather than managed reactively. From reviewing your company structure for associated company issues to timing expenditure and pension contributions for maximum relief, the team provides practical guidance grounded in current HMRC rules. Head to our website and book a meeting now.

The Bottom Line on Corporation Tax in 2026/27

The two-rate system means the effective corporation tax rate your company pays depends directly on your profit level, your associated companies, and the planning steps taken before the year end. A company earning £120,000 in taxable profits pays an effective rate of around 23.4%, while the same company could reduce that significantly through well-timed pension contributions or capital expenditure. Understanding how marginal relief operates — and acting on it before the year end closes — is the single most valuable thing most director-shareholders can do to manage their corporation tax position.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.