Corporation tax — questions answered
What this page covers
Direct answers to the most common corporation tax questions from UK limited company directors and contractors — the 2025/26 rates, how marginal relief works, payment deadlines, penalties, and the most effective legal ways to reduce your bill.
What is the UK corporation tax rate for 2025/26?
Direct Answer
There are two rates: 19% (small profits rate) on profits up to £50,000, and 25% (main rate) on profits over £250,000. Companies with profits between £50,000 and £250,000 pay a blended rate via marginal relief. The rates are unchanged from 2024/25.
What corporation tax rate applies to most contractors?
Direct Answer
Most one-man limited company contractors pay the small profits rate of 19%. Because contractors typically extract most of their profit via salary and dividends, taxable profits usually fall below £50,000. Contractors on higher day rates who retain more profit in the company may enter the marginal relief band — which is where planning with your accountant becomes especially valuable.
What is marginal relief?
Marginal relief smooths the transition from 19% to 25% so there is no cliff edge at £50,000. Without it, crossing £50,000 of profit would trigger 25% on the entire amount. With marginal relief, the effective rate tapers gradually through the band.
The effective marginal rate on profits between £50,000 and £250,000 is 26.5% — higher than the 25% headline rate. Making a pension contribution or AIA claim that reduces profits below £50,000 saves at this 26.5% rate, not just 19%.
How is marginal relief calculated?
Worked examples
| Profit: £40,000 — below threshold | |
| Tax at 19%: | £7,600 |
| Tax payable: | £7,600 |
| Profit: £100,000 — in marginal band | |
| Tax at 25%: | £25,000 |
| Marginal relief: (£250k−£100k) × 3/200: | −£2,250 |
| Tax payable: | £22,750 (22.75%) |
| Profit: £300,000 — above upper threshold | |
| Tax at 25%: | £75,000 |
| Marginal relief: | None |
| Tax payable: | £75,000 (25%) |
When do I have to pay corporation tax?
| Year end | Pay corporation tax by | File CT600 by |
|---|---|---|
| 31 March | 1 January | 31 March (following year) |
| 30 April | 1 February | 30 April (following year) |
| 31 May | 1 March | 31 May (following year) |
| 30 June | 1 April | 30 June (following year) |
| 31 December | 1 October | 31 December (following year) |
Corporation tax must be paid 9 months and 1 day after your accounting period end — three months before the CT600 filing deadline.
What are the penalties for late filing or late payment?
| Failure | Consequence |
|---|---|
| CT600 filed 1 day late | £100 automatic penalty |
| CT600 filed 3 months late | Further £100 penalty |
| CT600 filed 6 months late | HMRC estimates tax + 10% of unpaid tax penalty |
| CT600 filed 12 months late | Further 10% of unpaid tax penalty |
| Tax paid late | Interest at 7.75% p.a. from due date |
| Deliberate understatement | Up to 100% of tax due as penalty |
What are associated companies and why do they matter?
The corporation tax thresholds are divided by the number of associated companies you control. This catches contractors who run multiple companies.
| Associated companies | Small profits threshold | Upper threshold |
|---|---|---|
| 1 (just you) | £50,000 | £250,000 |
| 2 | £25,000 | £125,000 |
| 3 | £16,667 | £83,333 |
| 4 | £12,500 | £62,500 |
Your company and your spouse's company count as associated if you have significant influence over both. A dormant company is excluded if it was dormant throughout the entire accounting period.
How can I reduce my corporation tax bill?
Employer pension contributions
Fully deductible, no Income Tax or NI. The single most tax-efficient extraction method — saves 19–25% corporation tax on every pound contributed.
Annual Investment Allowance
100% first-year deduction on qualifying plant and machinery (computers, equipment, software) up to £1 million per year.
Claim all allowable expenses
Home office, mileage, professional subscriptions, training, insurance — every deductible expense reduces your taxable profit at your marginal rate.
R&D Tax Relief
If your work involves developing new processes, software or technology, R&D relief may apply — worth checking with your accountant even if you're unsure.
Marginal relief planning tip
If your profits are just above £50,000, the marginal rate on that slice is 26.5%. A pension contribution or AIA claim that drops profits below £50,000 saves at 26.5% on the final slice — significantly more than the 19% small profits rate suggests. Example: profits of £60,000 → a £10,001 pension contribution saves ~£2,650 on that slice.
Do employer pension contributions reduce corporation tax?
Direct Answer
Yes — employer pension contributions are a fully allowable deduction against corporation tax profits, attract no Income Tax or National Insurance, and reduce the company's taxable profit pound for pound. A £10,000 employer pension contribution saves £1,900 in corporation tax at 19%, or £2,500 at 25%. For contractors just above the £50,000 threshold, contributions can save at the 26.5% effective marginal rate.
How do I file and pay corporation tax?
Prepare statutory accounts — profit and loss, balance sheet for the accounting period
Complete CT600 tax computations — adjust accounting profit for tax, claim allowances, apply marginal relief if applicable
File CT600 online via HMRC's portal with iXBRL-tagged accounts — within 12 months of year end
Pay corporation tax via bank transfer to HMRC using your UTR as reference — by 9 months and 1 day after year end
A full-service contractor accountant handles all of this as part of your monthly package.
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Related guides
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