What is the Corporation Tax rate in 2025?
The main Corporation Tax rate is 25% for profits over £250,000. Small profits rate is 19% for profits under £50,000. Marginal relief applies between £50,000 and £250,000.
Detailed Explanation
Corporation Tax rates for 2024/25 and 2025/26:
Main rate
25% on profits over £250,000
Small profits rate
19% on profits up to £50,000
Marginal relief
Applies to profits between £50,000 and £250,000. The effective rate gradually increases from 19% to 25%.
The marginal relief formula is: 3/200 x (£250,000 - profits)
This results in an effective marginal rate of 26.5% on profits between the two thresholds.
Associated companies
The £50,000 and £250,000 thresholds are divided by the number of associated companies. Two associated companies means thresholds of £25,000 and £125,000.
Example
- Profits of £100,000 with no associated companies - Tax at small profits rate: £50,000 x 19% = £9,500 - Tax on remainder: £50,000 x 25% = £12,500 - Marginal relief: 3/200 x (£250,000 - £100,000) = £2,250 - Total tax: £9,500 + £12,500 - £2,250 = £19,750 - Effective rate: 19.75%
Source: HMRC Corporation Tax Rates
Real-World Examples
High-Profit Manufacturing Company
ABC Manufacturing Ltd. has a projected profit of £350,000 for the year ending March 31, 2026. They will pay Corporation Tax at the main rate of 25%, resulting in a tax bill of £87,500 (£350,000 x 25%).
Small Software Startup
Tech Solutions Ltd. anticipates a profit of £40,000 for the year. As their profit is below £50,000, they qualify for the small profits rate of 19%. Their Corporation Tax liability will be £7,600 (£40,000 x 19%).
Growing Retail Business
Retail Plus Ltd. forecasts profits of £150,000. They will need to calculate marginal relief. Without calculating, it is known that their effective tax rate will be somewhere between 19% and 25% due to the marginal relief rules.
Common Mistakes to Avoid
- Forgetting to factor in associated companies, which can reduce the thresholds for the small profits rate and marginal relief.
- Applying the main Corporation Tax rate to the entire profit, even when the company is eligible for the small profits rate or marginal relief.
- Failing to accurately calculate marginal relief, leading to an incorrect Corporation Tax liability.
- Not keeping accurate accounting records, making it difficult to determine the correct profit figure for Corporation Tax purposes.
Frequently Asked Questions
How does the number of employees affect the Corporation Tax rate?
The number of employees does *not* directly affect the Corporation Tax rate. The rates are solely determined by your company's profit levels and any associated companies.
If my company's profit fluctuates significantly year-to-year, how should I plan for Corporation Tax?
Consider setting aside a portion of your profits each month or quarter into a separate savings account to cover your estimated Corporation Tax liability. Regularly review your financial performance and adjust your savings accordingly.
Are there any specific tax reliefs or allowances I should be aware of that could reduce my Corporation Tax bill?
Yes, you should explore Research and Development (R&D) tax credits, capital allowances (for qualifying asset purchases), and potentially creative industry tax reliefs depending on your company's activities. Seek professional advice to determine eligibility.
What happens if I overestimate my Corporation Tax liability and pay too much?
HMRC will refund any overpaid Corporation Tax. Ensure your company tax return (CT600) accurately reflects your profits and any adjustments.
Practical Tips
- Use accounting software that automatically calculates Corporation Tax based on your profit and loss statement, including marginal relief if applicable.
- Set up a dedicated Corporation Tax savings account to ensure funds are available when the payment deadline approaches.
- Consult with a qualified accountant or tax advisor to review your company's tax position and identify any potential tax planning opportunities.
- Keep detailed records of all income and expenses, as well as any relevant supporting documentation, to ensure accurate tax reporting.
Related Questions
When is Corporation Tax due?
Corporation Tax is due 9 months and 1 day after your company's accounting period ends. Your CT600 return must be filed within 12 months of the accounting period end.
What expenses reduce Corporation Tax?
Most genuine business expenses reduce your Corporation Tax bill, including salaries, rent, utilities, professional fees, travel, equipment, and pension contributions. The expense must be 'wholly and exclusively' for business purposes.
How do I file a CT600 Corporation Tax return?
File your CT600 online through HMRC's Company Tax Return service or commercial software. You need your company UTR, accounts, and tax computations. The deadline is 12 months after your accounting period ends.
Get instant answers to all your accounting questions
AccountsOS uses AI to answer your tax and accounting questions in plain English. No more Googling or waiting for your accountant.
Get Started FreeFree during Early Access - No credit card required