How UK Corporation Tax Works (2026/27)
UK Corporation Tax is levied on the worldwide profits of companies resident in the United Kingdom under the Corporation Tax Act 2010 (CTA 2010). Following statutory reforms enacted in recent Finance Acts, the UK operates a tiered corporate tax structure designed to protect small enterprises while taxing larger corporations at the OECD-aligned standard rate.
Applies to companies with annual augmented profits up to £50,000. Small limited companies pay a flat 19% on all trading profits.
Applies to profits between £50,000 and £250,000. Profits in this band are subject to a statutory taper formula that creates an effective marginal tax rate of 26.5%.
Applies to companies with annual augmented profits exceeding £250,000. The full 25% rate is charged on all taxable profits without relief.
The Statutory Marginal Relief Formula (Section 18B CTA 2010)
When a company's profits fall between the Lower Limit (£50,000) and the Upper Limit (£250,000), Corporation Tax is calculated by applying the 25% Main Rate and deducting Marginal Relief:
Marginal Relief = F × (U - A) × (N / A)
Associated Companies Rules (Section 18E CTA 2010)
To prevent business owners from fragmenting a large business into multiple smaller entities to exploit the 19% small profits rate, the Associated Companies rules were reinstated under Section 18E of CTA 2010.
Two companies are "associated" if one has control of the other, or both are under the control of the same person or persons (such as a business owner and their spouse if substantial economic interdependence exists).
| Number of Associated Companies | Total Entities | Lower Limit (19% Cap) | Upper Limit (25% Threshold) |
|---|---|---|---|
| 0 (Single standalone company) | 1 | £50,000 | £250,000 |
| 1 associated company | 2 | £25,000 | £125,000 |
| 2 associated companies | 3 | £16,667 | £83,333 |
| 3 associated companies | 4 | £12,500 | £62,500 |
Capital Allowances: Full Expensing & Annual Investment Allowance
Capital expenditure on business equipment cannot be deducted as an ordinary trading expense in your profit and loss account. Instead, companies claim statutory Capital Allowances under the Capital Allowances Act 2001 (CAA 2001):
Offers a 100% first-year tax write-off on up to £1,000,000 of qualifying plant and machinery. Applicable to both new and second-hand equipment, commercial vans, and tools.
Corporations can claim an unlimited 100% first-year deduction on qualifying brand new main rate plant and machinery (under Section 7 Finance (No. 2) Act 2023), immediately reducing Corporation Tax by up to 25p for every £1 invested.