How Much is Corporation Tax?

Corporation Tax is one of the main taxes that limited companies in the UK must pay but with rate changes, profit bands and marginal relief rules, it can feel confusing to work out how much your business actually owes. Whether you’re a sole director of a small company or managing a growing team, understanding how Corporation Tax is calculated is key to staying compliant and making smart financial decisions.

Understanding the Corporation Tax rates is one thing making sure your company is fully compliant, efficient and not overpaying is another. That’s where expert support can make a genuine difference. Our team of experienced limited company accountants works closely with directors across the UK, helping them navigate profit thresholds, marginal relief, allowable deductions and strategic planning. Whether you’re paying at the 19% rate or managing multiple associated companies with more complex obligations, we offer tailored advice and hands-on support to help reduce your Corporation Tax liability and optimise your company’s finances year-round.

In this guide, we explain the current Corporation Tax rates, how to work out what you owe, how marginal relief works, and what affects your company’s final tax bill.

What is Corporation Tax?

Corporation Tax is a tax your company pays on its taxable profits this includes money earned from trading, investments, and selling assets for more than they cost (capital gains). It applies to UK limited companies and some other organisations including clubs, societies and foreign companies with a UK branch.

Sole traders and partnerships do not pay Corporation Tax. Instead, they pay Income Tax and National Insurance through Self Assessment.

Corporation Tax Rates for 2024/25

As of the 2024/25 tax year, the UK has a tiered Corporation Tax system based on your company’s profit levels:

• 19%: For companies with profits of £50,000 or less

• 25%: For companies with profits over £250,000

• Marginal relief: Companies with profits between £50,001 and £250,000 pay an effective rate somewhere between 19% and 25%

These thresholds are reduced if your company has associated companies (other businesses under the same control), which can push more of your profits into the higher tax bands.

How is Corporation Tax Calculated?

Corporation Tax is calculated on your taxable profit which means you deduct allowable expenses from your turnover before applying the rate.

Here’s a simple breakdown:

1. Turnover – All money coming into the company

2. Minus allowable expenses – Salaries, rent, equipment, etc.

3. Equals taxable profit

4. Apply the relevant tax rate to this profit

Let’s say your company makes a profit of £40,000:

• You would pay 19%, which is £7,600 in Corporation Tax.

If your profit is £275,000:

• The first £250,000 is taxed at 25%

• The extra £25,000 is still taxed at 25%

• No marginal relief applies

If your profit is £125,000, marginal relief would apply, and you’d pay slightly less than the full 25%. HMRC provides a marginal relief calculator to help you work this out.

What is Marginal Relief?

Marginal relief is a way to smooth the jump from the 19% to the 25% rate, so that businesses with profits between £50,001 and £250,000 don’t face a sudden tax hike.

The effective rate increases gradually as profits rise. This means a business making £60,000 in profit will pay a little more than 19%, while a business making £200,000 will pay close to 25%.

The marginal relief fraction for 2024/25 is 3/200, and HMRC’s calculator will handle the maths for you but an accountant can help ensure you're not overpaying.

What Counts as Profit?

Corporation Tax is only applied to profits, not turnover. You can deduct things like:

• Salaries and pensions

• Rent, utilities and office costs

• Equipment and software

• Professional fees

• Travel and subsistence

• Marketing and advertising

• Interest on business loans

• Capital allowances on major purchases

Claiming all allowable costs reduces your taxable profit and your Corporation Tax bill.

Real-World Examples

Example 1 – Small Company
Turnover: £100,000
Expenses: £55,000
Profit: £45,000
Tax rate: 19%
Tax owed: £8,550

Example 2 – Growing Business
Turnover: £400,000
Expenses: £150,000
Profit: £250,000
Tax rate: 25%
Tax owed: £62,500

Example 3 – Mid-Sized Firm with Marginal Relief
Turnover: £300,000
Expenses: £180,000
Profit: £120,000
Tax rate: Approx. 22.75% (using marginal relief)
Tax owed: Around £27,300

These examples show how important it is to understand where your company sits on the scale—and how to plan accordingly.

What if I Have More Than One Company?

If you control multiple companies, they are treated as associated companies for Corporation Tax purposes. This means the £50,000 and £250,000 thresholds are divided between them.

So if you own two companies, each would have a lower threshold:

• Small profits threshold: £25,000

• Main rate threshold: £125,000

This can increase your tax bill if not carefully managed.

When and How to Pay Corporation Tax

Corporation Tax must be paid within 9 months and 1 day after the end of your accounting period. The Company Tax Return (form CT600) must be filed within 12 months.

For most small businesses, this means:

• Year-end 31 March

• Tax payment due 1 January

• Return filed by the following 31 March

You can pay by bank transfer, Direct Debit or via HMRC’s online service. Interest is charged on late payments, and penalties apply for late filings.

For more on when payments need to be made, visit when is corporation tax due and If you're ready to pay, here’s our guide on how to pay corporation tax.

How to Reduce Corporation Tax

There are several legitimate ways to reduce your bill:

• Claim all allowable expenses

• Invest in qualifying assets and claim capital allowances

• Make employer pension contributions

• Pay yourself through a tax-efficient mix of salary and dividends

• Use Research & Development (R&D) tax credits if eligible

• Donate to charity through the business

Speak to a qualified accountant to build a tailored tax strategy that meets your goals. For smaller companies or single-director businesses, the Corporation Tax rules might seem straightforward on paper, but the real-world decisions—like how to take income tax-efficiently or when to make pension contributions require care. Our dedicated small company accountant service is designed specifically for businesses operating at the lower end of the profit scale, where every saving matters. We provide practical, jargon-free advice on staying compliant, claiming all available reliefs and planning ahead so you can focus on growth without worrying about tax surprises.

If you’d like to explore related tax content, check out our Corporation Tax Help hub.