UK Corporation Tax 2026: Rates, Deadlines and How to Pay Less

What UK Corporation Tax Is

Corporation Tax is the income tax charged on a UK limited company's profits. It is separate from the tax you pay personally on dividends or salary, and separate from VAT, which is charged on sales.

The mechanics are straightforward. Your accounting records determine your adjusted total profits — accounting profit adjusted for non-deductible expenditure and certain other items. HMRC applies a tapered rate to that figure and issues a CT600 return with the result.

Two things make it awkward for founders:

1. You must register with HMRC within 3 months of starting business activity, even if your company is dormant and even if you expect no profit.
2. The deadline is set by your accounting period, which for most new companies is the date of incorporation — meaning your first deadline arrives roughly 21 months after you start.

[!IMPORTANT] Not registering leaves your company liable for penalties from the day it should have registered, even if it never trades. HMRC does not wait for you to start earning.

The 2026 Rate Structure

UK Corporation Tax is not a single flat rate. It tapers:

The two thresholds rise each year in line with inflation. Because they are associated-company thresholds, they are shared: if you control two or more companies, they must divide a single set of thresholds between them rather than each claiming the full £50,000 and £250,000.

Marginal Relief Explained

Between £50,000 and £250,000 you do not simply jump to 25%. You apply the marginal relief fraction, currently 3/200.

The relief is capped at the amount of corporation tax paid minus the tax that would have applied at the small profits rate:

Relief = (Main Rate tax − Small Profits tax) × 3/200

At £150,000 of profits the effective rate is roughly 22.6%. At £200,000 it is about 24%. There is a discontinuity at exactly £50,000 where profits above it can face a marginally higher rate than profits just below — a well-known quirk that catches businesses out at the boundary.

Associated Companies

If you form several UK companies, HMRC treats them as one for banding. Three companies each with £40,000 of profit are not taxed at 19% each — the combined £120,000 is taxed as one entity, dragging all three into marginal relief.

This matters for holding structures where you run a trading company alongside a property company or an IP-holding company. The structure may be sound commercially while being tax-inefficient purely because of the associated-company rules.

R&D Tax Credits

The UK has one of the most generous Research & Development regimes in Europe, and for a loss-making startup it can be the difference between surviving and not.

How it works:

• Qualifying R&D expenditure generates an enhanced deduction — currently 86% of qualifying spend is deductible, meaning a £100,000 qualifying investment reduces taxable profits by £86,000 rather than £100,000.
• Loss-making companies can convert the resulting loss into a payable R&D tax credit from HMRC.
• From April 2024, the headline benefit is an effective 14.5% cash benefit rate for companies with qualifying R&D expenditure.

What qualifies: software development, product development, novel manufacturing processes, and certain biotech work. What does not qualify: routine bug fixes, ordinary website maintenance, market research, and standard IT administration.

The catch: the claim must be made in your CT600 and you must keep a technical narrative explaining the advance on your project and what wasn't a routine advance. HMRC rejects a majority of first-time claims filed without a properly documented narrative.

[!TIP] If your company develops software, you almost certainly have qualifying R&D. Many founders claim nothing because they assume software "isn't really R&D". It is — and the documentation burden is manageable.

Directors' Remuneration: Salary vs Dividend

How you extract profit from your company changes your personal tax position substantially.

Salary:

• Must be paid through PAYE
• Attracts National Insurance (Class 1) above the annual secondary threshold, currently £9,100 for employers
• Counts toward your state pension and, after April 2024, your state pension entitlement

Dividends:

• Paid from after-tax profits only
• No National Insurance
• No personal allowance cost
• Must be declared on your personal Self Assessment return
• No PAYE, no NIC, no pension credit

The "hybrid" approach: pay a modest salary to maintain your National Insurance record and pension entitlement, then take the remainder as dividends. For a typical owner-director taking £60,000 out of a newly formed company, the salary-and-dividend split typically saves several thousand pounds in National Insurance against taking the whole amount as salary.

[!WARNING] Since April 2023, the amount you can pay yourself tax-free via an Employer's Allowance has been capped at £10,000. Drawing more than that for non-billable work has consequences — HMRC treats excess director payments as a benefit in kind and charges both corporation tax on the gross-up and income tax on the benefit.

Filing Deadlines

Your CT600 is due 12 months after the end of your accounting period, and any tax liability is due on the same date.

For a company incorporated on 1 March 2026 with a 31 March year-end:

Payment on account is the part that catches people. HMRC normally requires tax to be paid in advance, before the year is over. You pay tax on your previous year's tax, updated for current trading. Two payments are normally due: one 6 months and 12 months after the year-end.

If your first two accounting periods produce small or nil profits, you can apply to reduce or eliminate payments on account.

Penalties for Late Filing

Automatic penalties apply if your accounts are late in two consecutive filing periods. You cannot avoid them by filing the following year's accounts early — the penalty attaches automatically.

For a dormant company, HMRC reduced late-filing penalties for periods starting on or after 1 April 2024, but only if the penalty relates solely to a dormant period and the return is otherwise compliant. You must still file.

What Non-Resident Directors Should Know

The rates and deadlines are identical for UK companies with non-resident directors. Three things differ in practice:

Withholding tax on dividends. UK dividends paid to non-residents carry 25% withholding tax. Most non-UK countries treat this as a creditable tax in the founder's home country, so the effective rate is often zero. Check your own country's rules before assuming.

Management and control. A non-resident director who makes the key decisions on UK business activities can trigger the "centre of vital interests" test, which may make the company liable to UK Corporation Tax even if profits arise elsewhere.

Treaties and foreign tax credits. Corporation Tax paid in another country can usually be credited against UK liability under the Treaty, but the claim must be made in the CT600 within the specified time limits.

Dormant Companies

If your company made no transactions and is not operating, you still file. Dormant companies:

• File dormant accounts instead of full accrual accounts
• Must still file a Confirmation Statement (CS01)
• Are generally not liable to Corporation Tax provided they are genuinely inactive
• Avoid most automatic penalties if they meet the strict conditions HMRC now applies

Note that HMRC's definition of "dormant" is narrow. Receiving a small payment, running a promotional sale, or using bank facilities can disqualify you from dormant status. Our separate dormant company compliance guide covers this in detail.

Checklist

• Register with HMRC for Corporation Tax within 3 months of starting activity
• Keep a record of the company's incorporation date and accounting period end
• Review R&D eligibility every year and keep a technical narrative
• Review director remuneration mix — salary versus dividend
• Check whether associated-company rules apply if you control multiple companies
• Diary the CT600 deadline and both payment-on-account dates
• File dormant accounts and a CS01 even with no trading

Need Tax Planning From Day One?

Getting Corporation Tax right at formation is easier than unwinding it later. Our formation packages include an initial tax planning review so your accounting period, director remuneration and R&D position are set up correctly from your first filing.

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