Corporation Tax Calculator

Corporation tax is the tax charged on the profits of UK limited companies, as well as foreign companies with a UK permanent establishment. For accounting periods starting on or after 1 April 2023, the UK operates a two-rate system: a small profits rate of 19% for companies with profits up to £50,000 and a main rate of 25% for profits exceeding £250,000. Companies with profits between these two thresholds benefit from marginal relief, which gradually increases the effective rate. Understanding how this system works is essential for accurate forecasting and effective tax planning.

How Marginal Relief Works

Marginal relief prevents a cliff-edge where a company earning £50,001 would suddenly face the full 25% rate. Instead, the formula gradually increases the effective rate from 19% to 25% across the £50,000 to £250,000 band. The calculation works as follows: the company is initially charged at the main rate of 25%, then marginal relief is deducted using the formula (Upper Limit - Profits) x 3/200. For example, a company with taxable profits of £100,000 would calculate marginal relief as (£250,000 - £100,000) x 3/200 = £2,250. The corporation tax at the main rate would be £25,000, minus £2,250 marginal relief, giving a total liability of £22,750 and an effective rate of 22.75%.

Associated Companies Rules

The £50,000 and £250,000 thresholds are divided equally among associated companies. Two companies are associated if one controls the other, or both are under common control. If you have one associated company, the thresholds halve to £25,000 and £125,000 respectively. This means a director who owns multiple companies cannot simply spread profits across them to stay within the small profits rate. Dormant companies that have not traded and have no income are generally excluded from the count, but careful analysis is needed. Our corporation tax specialists can review your group structure to ensure the thresholds are applied correctly.

Allowable Deductions That Reduce Your Tax Bill

Corporation tax is calculated on taxable profits, not gross revenue. All expenses incurred wholly and exclusively for the purposes of the trade are deductible. This includes staff costs, rent, professional fees, marketing, travel, and office expenses. Capital allowances let you deduct the cost of equipment, vehicles, and machinery -- the Annual Investment Allowance currently provides 100% first-year relief on qualifying expenditure up to £1 million. Research and Development (R&D) tax credits provide additional relief for qualifying innovation expenditure. Pension contributions made by the company on behalf of directors and employees are fully deductible and not subject to National Insurance, making them one of the most efficient ways to reduce your corporation tax bill.

Payment Deadlines and Filing Requirements

Corporation tax is due nine months and one day after the end of your accounting period. Your Company Tax Return (CT600) must be filed within 12 months of the accounting period end. Late payment incurs automatic interest from the day after the deadline, and late filing attracts penalties starting at £100 and increasing over time. Companies with profits exceeding £1.5 million (divided by associated companies) must pay corporation tax in quarterly instalments during the accounting period itself, rather than waiting until nine months after the year end. This can create significant cash flow pressure for growing companies, and planning ahead is critical.

Optimising Your Position

Many company directors overlook legitimate opportunities to reduce their corporation tax. Beyond the standard deductions, strategies such as timing capital expenditure, making employer pension contributions, claiming R&D tax credits, and structuring director remuneration efficientlycan materially reduce your effective tax rate. The interaction between corporation tax and personal tax (on dividends and salary) means that the optimal strategy requires a holistic view of both the company’s and the director’s tax position. This is exactly what our chartered accountants provide.