Corporation Tax 2026/27: Rates, Reliefs and How to Reduce Your Bill

Corporation Tax 2026/27: The Complete Guide

Corporation tax (CT) is charged on the taxable profits of UK limited companies, certain associations, and foreign companies with UK operations. The two-tiered structure — small profits rate and main rate — introduced in 2023 continues for 2026/27, creating important planning opportunities for growing businesses.

Corporation Tax Rates 2026/27

Associated companies: The £50,000 and £250,000 thresholds divide by the number of associated companies (broadly, companies under common control). Two associated companies each have a £25,000 small profits threshold. This means many business owners with multiple companies pay at the main rate sooner than they expect.

Marginal Relief in Practice

Marginal relief provides a smooth transition between 19% and 25% for profits in the middle band. The formula:

Relief = (£250,000 − Taxable Profits) × (Taxable Profits / Augmented Profits) × 3/200

The effective marginal rate within the £50k–£250k band is approximately 26.5% — higher than the headline main rate of 25%.

What Counts as Taxable Profit

Corporation tax applies to:

• Trading profits: Revenue minus allowable expenses
• Investment income: Bank interest, rental income received by the company
• Chargeable gains: Asset disposals (no annual exempt amount for companies)
• Intangible asset income: Patents, trademarks (special regimes)

Key Allowable Deductions

To reduce taxable profit, expenses must be incurred "wholly and exclusively" for the purposes of the trade.

Always deductible: Salaries and employer NI; employer pension contributions; rent and rates; utilities; professional fees; software subscriptions; business mileage; bad debt write-offs; advertising.

Not deductible: Client entertainment; capital expenditure (use capital allowances instead); fines and penalties; personal expenditure charged to the company.

Capital Allowances: Deducting Assets

Capital expenditure is not immediately deductible but instead claims capital allowances:

Full Expensing (made permanent in 2023) allows immediate 100% deduction on qualifying plant and machinery. A company at 25% CT buying £100,000 of equipment saves £25,000 in CT immediately.

Research and Development (R&D) Tax Relief

R&D relief is one of the most valuable incentives for innovative businesses — and widely underused.

Combined R&D scheme (2026/27 for most companies):

• Enhanced deduction: 230% of qualifying R&D expenditure for loss-making SMEs
• Tax credit (RDEC): 20% of qualifying expenditure for larger companies
• Net benefit varies: 15–33% of R&D costs depending on company type

What qualifies:

• Staff costs for R&D activities
• Consumables used in R&D
• Software for R&D
• Subcontractor costs (60% cap for SMEs)

You do not need to be a technology company. R&D includes developing new manufacturing processes, novel recipes, engineering custom solutions, or writing unique software for internal use.

Strategies to Reduce Your CT Bill

Corporation Tax Payment Deadlines

Late payment attracts interest at HMRC's current rate (7.75%). Filing the CT600 return is required within 12 months of the accounting period end.

Frequently Asked Questions

Q: Can I carry CT losses forward indefinitely? Yes — trading losses carry forward indefinitely against future trading profits. They can also be carried back one year for a CT refund of already-paid tax. This is particularly useful in the first year of profitability following a loss-making period.

Q: My company makes rental income — is it subject to CT? Yes. Rental income received by a company is subject to corporation tax, not income tax. The deductible expenses differ from personal landlord rules (notably: no Section 24 mortgage interest restriction — companies can still deduct full finance costs).

Q: When must I file my CT600 return? Within 12 months of your accounting period end. Most small companies have 12-month accounting periods ending on the same date each year. File online via HMRC's Company Accounts and Tax Online (CATO) system. Penalties start at £100 for one day late.

Q: What is the marginal rate on profits between £50k and £250k? The effective marginal rate on each additional pound of profit in this band is approximately 26.5% — higher than the headline 25% main rate. This makes reducing profits in this band through pension contributions or other legitimate deductions particularly valuable.