For the financial year starting 1 April 2026 a UK resident company pays corporation tax at 19% if its augmented profits are £50,000 or less and 25% if they are over £250,000, with marginal relief in between. Those limits shrink for short accounting periods and are divided by the number of associated companies. Close investment holding companies and companies that are not UK resident cannot use the 19% rate at all.
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What are the rates for each financial year?
Corporation tax rates are set for financial years, which run from 1 April to 31 March, not for the personal tax year that ends on 5 April. Financial year 2026 runs from 1 April 2026 to 31 March 2027. Section 18A of the Corporation Tax Act 2010 says the small profits rate is a rate lower than the main rate that Parliament sets for each financial year.
| Financial year | Small profits rate | Main rate | Lower limit | Upper limit | Standard fraction |
|---|---|---|---|---|---|
| 2026 | 19% | 25% | £50,000 | £250,000 | 3/200 |
| 2025 | 19% | 25% | £50,000 | £250,000 | 3/200 |
| 2024 | 19% | 25% | £50,000 | £250,000 | 3/200 |
| 2023 | 19% | 25% | £50,000 | £250,000 | 3/200 |
| 2022 | Single rate of 19% | Not applicable | |||
GOV.UK confirms that from 1 April 2015 to 31 March 2023 a single rate applied to all companies, and that the rate on profits before 1 April 2015 depended on the size of the profits. The two rate system therefore only applies to profits from 1 April 2023.
Which profit figure decides the rate?
The test is not taxable profit alone. Sections 18A and 18B compare the company’s augmented profits with the limits. Under section 18L, augmented profits are taxable total profits plus exempt distributions of a qualifying kind, broadly dividends received from companies that are not 51% subsidiaries of the recipient or of its parent. Dividends from a company’s own 51% subsidiaries are left out.
Illustration only. A trading company has taxable profits of £45,000 and also receives £10,000 of exempt dividends from a minority holding in another company. Its augmented profits are £55,000, so it is above the £50,000 lower limit. It pays 25% on its £45,000 of taxable profits, reduced by marginal relief, not a flat 19%. The dividends themselves stay exempt; they only push the company up the scale.
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How do the limits change for a particular company?
Section 18D sets the £50,000 and £250,000 limits for a company with no associated companies. Two adjustments then apply.
- Associated companies. Both limits are divided by one plus the number of associated companies. HMRC’s example at CTM03935 shows a company with three associated companies getting limits of £12,500 and £62,500. Our guide to associated companies and the control test explains who counts.
- Short accounting periods. For a period of less than 12 months both limits are reduced proportionately. HMRC’s example at CTM03930 gives a nine month period limits of £37,500 and £187,500, and notes that strictly the reduction is worked out in days.
An accounting period for corporation tax can never be longer than 12 months, so accounts covering more than 12 months need two returns, each period with its own limits. Our guide to the CT600 return covers how those periods are reported.
Which companies cannot use the 19% rate?
Section 18A only gives the small profits rate to a company that is UK resident in the accounting period, is not a close investment holding company and has augmented profits within the lower limit. Section 18B imposes the same residence and close investment holding company conditions for marginal relief. That leaves several groups paying the main rate on every pound of profit:
- Close investment holding companies. Under section 18N a close company is a close investment holding company unless it exists wholly or mainly for permitted purposes, such as trading commercially or investing in property let commercially to people who are not connected with it. HMRC’s guidance at CTM03951 says a close company that simply holds investments such as a bank deposit account falls within the definition and is liable at the full rate.
- Companies that are not UK resident. UK residence is a statutory condition for both the small profits rate and marginal relief.
- Ring fence profits. Profits from oil extraction or oil rights in the UK or UK continental shelf have their own regime, with a small ring fence rate of 19%, a main ring fence rate of 30% and a ring fence fraction of 11/400 from 2023.
There is a helpful exception for companies being wound up. Section 18N(5) says a company that was not a close investment holding company in the period ending just before the winding up starts is not treated as one in the next period, so a former trading company can still use the lower rates while its liquidator realises the assets. See our guide to corporation tax in liquidation. Unit trusts and open ended investment companies pay a special rate of 20% instead.
What happens when an accounting period straddles 1 April?
GOV.UK says that where more than one rate applies in an accounting period, you work out how many days each rate applied and the tax for each part. Its example is a calendar year 2023 period: 90 days at the rate for financial year 2022 and 275 days at the rate for financial year 2023. HMRC’s guidance at CTM03955 adds that where the limits change between financial years, the two parts are treated as separate accounting periods, profits are split on a strict time basis, and the limits for each part are scaled and divided by the associated companies for that part only.
Because the rates, limits and fraction have been identical for financial years 2023 to 2026, a period straddling 1 April 2024, 2025 or 2026 needs no split for rate purposes. HMRC’s example at CTM03956 makes this point for a period running from October 2023 to September 2024.
How do the rates combine in practice?
Illustration only. Three unconnected UK trading companies, each with a 12 month period ending 31 March 2027, no associated companies and no dividend income:
| Profits | Treatment | Corporation tax |
|---|---|---|
| £40,000 | Within the lower limit, so 19% | £7,600 |
| £100,000 | £25,000 at 25% less marginal relief of 3/200 × £150,000 = £2,250 | £22,750 |
| £300,000 | Above the upper limit, so 25% | £75,000 |
Inside the band each extra £1 of profit adds 25p of tax at the main rate and also reduces marginal relief by 3/200 of £1, which is 1.5p, so the marginal rate on that slice is 26.5%. Our guide to marginal relief works through the formula in more detail.
What mistakes do companies make with the rates?
- Testing taxable profits against the limits and forgetting exempt dividends that form part of augmented profits.
- Using the full £50,000 and £250,000 for a short first or final period.
- Missing an associated company, including one that was associated for only part of the period, since section 18E counts it for the whole period.
- Applying 19% to a close company whose only activity is holding cash or investments.
- Applying the personal tax year instead of the financial year to decide which rate applies.
For how the rates fit with filing and payment, see our overview of corporation tax.
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Related Accountapedia entries
- Corporation tax limits for short accounting periods
- Close investment holding companies
- Long first accounts: splitting into two tax returns
- Corporation tax instalments for very large companies
- Quarterly instalment payments for large companies
Sources
- GOV.UK: Rates and allowances corporation tax
- GOV.UK: Corporation tax rates
- legislation.gov.uk: Act 2010 c. 4, section 18A
- legislation.gov.uk: Act 2010 c. 4, section 18B
- legislation.gov.uk: Act 2010 c. 4, section 18L
- legislation.gov.uk: Act 2010 c. 4, section 18D
- GOV.UK: Manual page CTM03935
- GOV.UK: Manual page CTM03930
- legislation.gov.uk: Act 2010 c. 4, section 18N
- GOV.UK: Manual page CTM03951
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.