Corporation Tax Calculator

Understanding UK Corporation Tax Rates & Marginal Relief

The UK Corporation Tax system uses a dual-rate structure with a Marginal Relief sliding scale to prevent a steep cliff-edge tax increase for growing businesses:

1. Small Profits Rate (19%)

Applied to UK limited companies with taxable profits of £50,000 or less. If your taxable profit falls within this band, your company pays a flat 19% tax rate on all taxable profits.

2. Main Rate (25%)

Applied to companies with taxable profits exceeding £250,000. Profits at or above this threshold are taxed at a flat 25%.

3. Marginal Relief Band (£50,001 to £250,000)

If your taxable profit is between £50,000 and £250,000, your business pays the Main Rate of 25%, reduced by Marginal Relief. This creates a gradual increase in your effective tax rate from 19% up to 25%, ensuring you only pay higher tax on incremental profits.

4 Proven Ways to Reduce Your Corporation Tax Bill Legally

Proactive tax planning ensures you claim all legitimate business expenses and tax incentives before your accounting year-end:

1. Maximize Employer Pension Contributions: Direct company contributions to a director’s pension scheme are treated as an allowable business expense, reducing taxable profit while extracting wealth tax-efficiently.
2. Claim Capital Allowances: Take advantage of the Full Expensing / Annual Investment Allowance (AIA) to write off 100% of eligible plant, machinery, and IT equipment purchases against profits.
3. Utilize R&D Tax Relief: If your business develops new products, processes, or software, claiming Research & Development tax credits can significantly lower taxable income or generate payable cash credits.
4. Record All Allowable Expenses: Ensure all business costs—including home office allowances, staff entertainment, professional subscriptions, and business travel—are accurately recorded in your cloud accounting software (like Xero).

Frequently Asked Questions About Corporation Tax