Present Rates of Corporation Tax in the UK: What Every Business Needs to Know

Understanding the current rate of Corporation Tax is fundamental to running a compliant, tax-efficient UK company. Yet with the 2023 reforms introducing a tiered system for the first time in decades, many directors are still unsure which rate applies to their company – and how reliefs can reduce the amount owed.

This guide sets out the current rates, explains how they interact with your profit levels, and highlights the planning opportunities that can reduce your effective tax rate.

The Three Corporation Tax Bands (From 1 April 2023)

At a Glance

19% – Small Profits Rate (profits up to £50,000)
19% to 25% – Marginal Relief Band (profits £50,001 to £250,000)
25% – Main Rate (profits above £250,000)

The Small Profits Rate – 19%

Companies with annual taxable profits of £50,000 or below continue to pay Corporation Tax at 19%. This was the universal rate until April 2023, so small, owner-managed businesses are largely unaffected by the rate changes.

Example: A sole director company with £40,000 taxable profit pays £7,600 in Corporation Tax (£40,000 x 19%).

The Main Rate – 25%

The main rate of 25% applies to companies with taxable profits above £250,000. This rate applies to the whole profit, not just the slice above £250,000.

Example: A company with £300,000 taxable profit pays £75,000 in Corporation Tax (£300,000 x 25%).

The Marginal Relief Band – 19% to 25%

Companies with profits between £50,001 and £250,000 sit in the marginal relief band. Rather than jumping from 19% to 25%, the effective rate rises gradually using Marginal Relief.

The marginal relief formula reduces the 25% charge using a fraction of 3/200.

Example: A company with £150,000 taxable profit.

Corporation Tax at 25% = £37,500
Marginal Relief = (3/200) × (£250,000 − £150,000) = £1,500
Final Corporation Tax = £36,000
Effective rate ≈ 24%

Note: The effective marginal rate on each additional pound of profit in this band is 26.5%, making planning around the £250,000 threshold particularly valuable.

How Associated Companies Affect Your Thresholds

The £50,000 and £250,000 thresholds are divided by the total number of associated companies under common control.

• 1 associated company: limits become £25,000 and £125,000
• 2 associated companies: limits become £16,667 and £83,333
• 3 associated companies: limits become £12,500 and £62,500

This is one of the most frequently overlooked aspects of the current Corporation Tax system and can unexpectedly push companies into the 25% band.

Short Accounting Periods

If your accounting period is shorter than 12 months, the thresholds are reduced proportionally.

Example: A nine-month accounting period reduces the small profits threshold to £37,500 (£50,000 × 9/12).

Historical Context: What Changed in April 2023

Before 1 April 2023, a flat 19% Corporation Tax rate applied to all UK companies regardless of profit level. The move to a tiered system marked the most significant Corporation Tax change in a generation.

For accounting periods that straddle 1 April 2023, profits must be time-apportioned between the old and new rules.

Tax Planning Around the Current Rates

• Consider timing large deductible expenditure (e.g. equipment purchases) to bring profits below key thresholds 

• Pension contributions are tax-deductible and can reduce profits meaningfully 

• R&D Tax Credits can generate significant deductions even for small innovative businesses 

• Review associated company relationships – unnecessary associations increase your effective rate 

• Consider dividend timing and salary structure to manage personal and corporate tax together 

Ensure You’re Paying the Correct Corporation Tax Rate

At Cigma Accounting, we help businesses across London understand how the current corporation tax rates apply to their profits so they can plan effectively and remain compliant with HMRC requirements. From Farringdon, including Aldgate and Bank, many companies need clarity on how different profit levels are taxed, which is why our support focuses on providing straightforward, practical guidance that supports better financial decision-making.

Understanding how corporation tax rates apply is essential for forecasting liabilities, managing cash flow, and avoiding unexpected tax bills. With physical offices across London, we help businesses stay compliant while ensuring their tax position is correctly calculated and fully aligned with UK tax rules.