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Corporation tax explained

Who pays corporation tax, the 2026/27 rates, when and how to file, and worked examples for small limited companies in North Devon — in plain English.

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Who pays corporation tax?

Corporation tax is paid by UK limited companies on their taxable profits. It applies to:

UK-resident limited companies on all profits, wherever they arise
Foreign companies with a UK permanent establishment, on profits from that establishment
Members' clubs, societies, associations, and co-operatives
Housing associations and charities on any trading income that is not exempt

Sole traders and partnerships do not pay corporation tax — they pay Income Tax on their profits through Self Assessment instead. If you are unsure which structure applies to you, our Should I Go Limited? guide is a good starting point.

Corporation tax rates for 2026/27

The rate you pay depends on your company's taxable profits for the accounting period:

Band	Profit threshold	Rate	Notes
Small profits rate	Up to £50,000	19%	Applies to companies with profits at or below the lower limit
Marginal relief	£50,001 – £250,000	19%–25%	Effective rate tapers upward; marginal relief fraction reduces the bill
Main rate	Over £250,000	25%	Applies to companies with profits above the upper limit

If your company has associated companies (other companies under common control), the thresholds are divided between them. For example, two associated companies each have a lower limit of £25,000.

Marginal relief means companies with profits between £50,000 and £250,000 pay an effective rate between 19% and 25%. The exact calculation uses a standard fraction — your accountant can work this out precisely.

Key corporation tax deadlines

Corporation tax deadlines are tied to your company's accounting period, not the tax year:

Payment deadline

9 months and 1 day after year end

Corporation tax must be paid to HMRC within 9 months and 1 day of the end of your accounting period. For a 31 March year end, that is 1 January the following year.

CT600 filing deadline

12 months after year end

Your Company Tax Return (CT600) must be filed with HMRC within 12 months of the end of your accounting period. This is separate from your Companies House accounts deadline.

Companies House accounts

9 months after year end

Your statutory accounts must be filed at Companies House within 9 months of your accounting period end. These are separate from your CT600 but the figures must be consistent.

Quarterly instalment payments

Large companies only

Companies with profits over £1.5 million must pay corporation tax in quarterly instalments during the accounting period rather than as a lump sum after year end.

Penalties for late filing and payment

HMRC applies automatic penalties for late CT600 returns and charges interest on late payments:

How late	Penalty
1 day late	£100 fixed penalty
3 months late	A further £100 fixed penalty
6 months late	10% of unpaid tax
12 months late	A further 10% of unpaid tax

HMRC charges interest on late corporation tax payments from the day after the payment deadline. The rate changes periodically — check HMRC's website for the current rate.

The payment deadline is earlier than the filing deadline. Many directors miss the payment date because they are waiting for their accounts to be finalised — an accountant can prepare an estimate so you pay on time and avoid interest.

Worked examples

Here is what corporation tax typically looks like for limited companies we work with in North Devon:

Freelance consultant — first year

£55,000 turnover, £8,000 allowable expenses

Taxable profit is £47,000 — just below the £50,000 small profits threshold. Corporation tax at 19% = £8,930. The director then pays themselves a low salary (using the Personal Allowance) and takes the remainder as dividends, which are taxed separately through Self Assessment.

Corporation tax bill£8,930

Trades contractor — growing company

£130,000 turnover, £45,000 allowable expenses

Taxable profit is £85,000 — in the marginal relief band. The main rate of 25% applies but marginal relief reduces the bill. Effective rate is approximately 21.5%, giving a corporation tax bill of around £18,275. Annual Investment Allowance on equipment purchases can reduce this further.

Corporation tax bill~£18,275

Property management company

£40,000 net rental profit, £3,000 other expenses

Taxable profit is £37,000 — below the small profits threshold. Corporation tax at 19% = £7,030. Note that mortgage interest is fully deductible for limited companies (unlike for individual landlords, who face the 20% tax credit restriction).

Corporation tax bill£7,030

Established professional services firm

£280,000 turnover, £60,000 allowable expenses

Taxable profit is £220,000 — in the marginal relief band (assuming no associated companies). Effective rate is approximately 24.7%, giving a corporation tax bill of around £54,340. Pension contributions for directors are deductible and can significantly reduce the taxable profit.

Corporation tax bill~£54,340

How to reduce your corporation tax bill

There are legitimate ways to reduce the amount of corporation tax your company pays:

Claim all allowable expenses

Costs wholly and exclusively for business purposes are deductible — including salaries, rent, equipment, professional fees, travel, and software subscriptions.

Use the Annual Investment Allowance

The AIA lets you deduct the full cost of qualifying plant and machinery in the year of purchase, up to £1 million. This can significantly reduce taxable profits in years when you invest in equipment.

Make employer pension contributions

Employer contributions to a director's pension are a deductible business expense and reduce your taxable profit pound for pound — with no National Insurance on top.

Claim R&D tax relief

If your company works on innovative projects — even modest software or process improvements — you may qualify for Research and Development tax relief, which can reduce your tax bill or generate a cash repayment.

Time your expenditure carefully

Bringing forward deductible expenditure into the current accounting period (for example, prepaying subscriptions or buying equipment before year end) can reduce this year's taxable profit.

Let us handle your corporation tax

We prepare CT600 returns, calculate marginal relief, and advise on tax-efficient salary and dividend structures for limited companies across North Devon. Get in touch for a free, no-obligation quote.

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This guide is general information about how the rules work, not personal tax advice. Tax depends on your individual circumstances and the rules can change. Speak to a qualified adviser before making decisions.