What is the small profits rate for Corporation Tax?

From April 2023, the UK Corporation Tax system moved from a single rate to a tiered structure with a small profits rate and a main rate. This replaced the flat 19% rate that had applied since April 2017.

The small profits rate is 19%. This applies to companies with taxable profits up to £50,000 in an accounting period. The rate applies to the entire profit, so a company with £45,000 of taxable profit pays Corporation Tax of £8,550 (19% of £45,000).

The main rate is 25%. This applies to companies with taxable profits over £250,000. A company with £300,000 of taxable profit pays Corporation Tax of £75,000 (25% of £300,000).

Marginal relief applies to companies with profits between £50,000 and £250,000. This mechanism creates a smooth progression from the 19% small profits rate to the 25% main rate, so there is no cliff edge at the £50,000 threshold. The marginal rate on profits in this band effectively increases from 19% to 25% across the £200,000 range, with the marginal rate on the incremental profit in this band being approximately 26.5%.

The marginal relief formula is: Corporation Tax at main rate minus the Marginal Relief Fraction multiplied by (Upper Limit minus Profits). The Marginal Relief Fraction for 2025/26 is 3/200. For a company with taxable profits of £100,000: Corporation Tax at 25% = £25,000. Marginal Relief = 3/200 x (£250,000 - £100,000) = 3/200 x £150,000 = £2,250. Corporation Tax payable = £25,000 - £2,250 = £22,750. Effective rate = 22.75%.

The limits are reduced proportionately for short accounting periods and for associated companies. An associated company is one controlled by the same person or group. If you own two separate limited companies, the £50,000 and £250,000 thresholds are divided by the number of associated companies. With two associated companies, each company's small profits rate applies only to profits under £25,000, and marginal relief runs from £25,000 to £125,000.

This associated companies rule is important for directors with multiple businesses. Each additional company reduces the threshold at which the higher rate and marginal relief apply, potentially increasing the effective Corporation Tax rate across the group.

For a company with profits in the marginal relief band, increasing allowable deductions (for example through employer pension contributions or Annual Investment Allowance on equipment) reduces profits and can move the company from the marginal band down to the small profits rate zone. A company with £80,000 of profit that makes a £35,000 pension contribution reduces its taxable profits to £45,000, dropping entirely into the 19% small profits rate band and saving more than the marginal 19% rate would suggest.

For planning purposes, the boundaries to be aware of are: below £50,000 the rate is flat at 19%; above £250,000 the rate is flat at 25%; in between, the effective rate rises from 19% towards 25% with an incremental rate of approximately 26.5% on the profits in that band.

The current rate structure was introduced by Finance (No. 2) Act 2023 and the rates and thresholds have remained stable for 2025/26. Unlike VAT thresholds, the Corporation Tax limits are not indexed to inflation and are expected to remain at these levels for the foreseeable future.

Corporation Tax is reported and paid via the CT600 return. The deadline for filing the CT600 is twelve months after the end of the accounting period. The payment deadline is nine months and one day after the year end for companies not qualifying as large. For large companies (profits over £1.5 million), quarterly instalment payments apply.

AccountsOS calculates your estimated Corporation Tax liability in real time as transactions are recorded, so you can see whether your profits are likely to fall in the small profits band, the marginal relief band, or above the main rate threshold.