Limited Company Tax for Directors / Lesson 2 of 9
Corporation tax
Two rates, and an awkward band in between where the effective rate is higher than both.
The short answer
- ✓ Rates run from 19% to 25%, with marginal relief in between
- ✓ The marginal rate in the middle band exceeds both headline rates
- ✓ Associated companies divide the limits between them
- ✓ Payment is due nine months and a day after year end, before the return
The rates
| Taxable profit | Rate |
|---|---|
| Up to £50,000 | 19%, the small profits rate |
| £50,000 to £250,000 | 25% with marginal relief |
| Above £250,000 | 25% |
Marginal relief and the band in between
Between the limits, tax is charged at the main rate and then reduced by marginal relief. The effect is a smooth transition, but the marginal rate on profit in that band is higher than either headline rate.
Below £50,000 19%
Between the limits about 26.5% at the margin
Above £250,000 25%
Each extra pound of profit in the middle band
costs more than a pound at the top does.That matters for timing. Deferring income or accelerating a deductible cost so that profit falls below £50,000 is worth more than the headline difference suggests.
Associated companies
The limits are divided by the number of associated companies. Two companies under common control each get half the limits, so a director with two companies reaches the main rate at half the profit they would expect. This catches people who set up a second company for a separate venture without realising the tax effect on the first.
When it is due
Accounting period ends 31 March
Payment due 1 January <- 9 months and 1 day
Company tax return (CT600) due 31 March <- 12 months
Note the payment comes BEFORE the return.This ordering surprises everyone at first. You must work out and pay the tax three months before the return that reports it is due.
The bit HMRC does not spell out
Corporation tax is due nine months and a day after the year end, but nothing collects it during the year. A company that spends its cash as it arrives finds a large bill nine months later on profit already gone.
Setting aside roughly a fifth to a quarter of profit as it is earned, in a separate account, is the single most useful habit a new director can build. It is not a tax rule, it is the difference between a manageable January and a crisis.
Common mistakes
- Not reserving for the bill. Nothing collects it during the year.
- Missing the associated companies rule. A second company halves the limits.
- Assuming the return deadline is the payment deadline. Payment comes first.
- Ignoring the middle band. The marginal rate there exceeds 25%.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Company profit
Enter your taxable profit. Everything updates as you type.
Salary is an allowable expense, so it reduces the profit that Corporation Tax is charged on. The figure above is your profit before salary; we deduct it below.
19% up to the lower limit, 25% above the upper limit, with marginal relief in between. Short periods and associated companies reduce the limits.
Corporation Tax due
effective rate on taxable profit
- Profit entered
- Less director's salary
- Taxable profit
- Corporation Tax
- of which marginal relief saves
- Retained after tax
Estimate only. Excludes reliefs, capital allowances and group rules.
Tax as profit grows
How your Corporation Tax bill and retained profit change across the profit range, at your current period and associated-company settings.
| Item | Value |
|---|---|
| Lower limit (small profits) | |
| Upper limit (main rate) | |
| Small profits rate | |
| Main rate | |
| Marginal relief fraction | |
| Marginal effective rate in band |
Profits in the marginal band are effectively taxed at - higher than the headline 25% - because marginal relief is being clawed back.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
Compare saved scenarios
| Scenario | Taxable | Tax | Eff. rate | Retained | |
|---|---|---|---|---|---|
Key takeaways
- ✓ Rates run from 19% to 25%, with marginal relief in between
- ✓ The marginal rate in the middle band exceeds both headline rates
- ✓ Associated companies divide the limits between them
- ✓ Payment is due nine months and a day after year end, before the return
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. When is corporation tax due?
2. You set up a second company under common control. What happens to the corporation tax limits?
3. What is the marginal rate on profit between the two limits?
Sources
Finished this lesson?
Mark it done and we will remember where you got to.
