What is the UK corporation tax rate?

The main rate of UK corporation tax is 25 percent, applying to companies with annual profits above £250,000. The small profits rate is 19 percent, applying to companies with profits below £50,000. For companies with profits between £50,000 and £250,000, a marginal relief system applies, producing an effective rate that rises gradually from 19 to 25 percent across that band. These rates have been in place since April 2023, when the main rate increased from 19 percent to 25 percent.

How the rates are structured

The two-rate structure and the marginal relief system replaced the flat 19 percent rate that applied to all companies from 2017 to 2023. Under the previous system, every company paid the same rate regardless of profit level. Under the current system, small and medium-sized companies pay a lower rate, with the full 25 percent applying only to larger or more profitable businesses.

Marginal relief is calculated using a formula that effectively charges a higher rate on profits in the £50,000 to £250,000 band, producing a smooth progression from 19 to 25 percent. The effective marginal rate on profits within that band is approximately 26.5 percent, which is higher than the main rate, though the overall effective rate for a company at the top of the band is exactly 25 percent. This is worth understanding when assessing the tax cost of marginal profit growth for companies near the thresholds.

Associated companies and the thresholds

The £50,000 and £250,000 profit thresholds are divided by the number of associated companies a business has. Two associated companies share thresholds of £25,000 and £125,000. Four associated companies share thresholds of £12,500 and £62,500. Two companies are associated if one controls the other, or if both are controlled by the same person or persons. This means that business owners with multiple companies need to consider the group structure when assessing which rate applies, since the thresholds apply to the structure as a whole rather than to each entity independently.

When corporation tax is paid

Most companies pay corporation tax nine months and one day after the end of their accounting period. For a company with a 31 December year-end, that means corporation tax for the year ending December 2025 is due on 1 October 2026. Larger companies, those with annual profits above £1.5 million, pay in quarterly instalments during the accounting year rather than in a single payment after it ends.

The political context of the 2023 rate increase

The increase in the main rate from 19 to 25 percent in April 2023 was one of the largest single changes to UK corporation tax in decades. It was announced by Rishi Sunak as Chancellor in the March 2021 Budget, deferred during the Liz Truss government's brief reversal, and then reinstated by Jeremy Hunt. The increase was justified as necessary to fund post-pandemic public spending without further increases in personal taxation. Critics argued it reduced UK competitiveness as a destination for corporate investment. Supporters argued the effective rate remained below the OECD average and the damage to investment would be limited.

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