Corporation Tax Calculator (UK 2026)

Corporation Tax Guide 2026/27

What's the key thing to understand about Three-Tier System (Since April 2023)?

Profits up to £50,000: 19% (small profits rate). Profits £50,001 to £250,000: marginal relief — effective rate gradually increases from 19% to 25%. Profits over £250,000: 25% flat rate. The marginal relief formula: (£250,000 − profit) × (basic profits / augmented profits) × 3/200 — the profits ratio is 1 (and so drops out) for a standard company with no non-trading income, leaving simply (£250,000 − profit) × 3/200. This creates a smooth transition without a 'cliff edge' at £50,000. Effective rates within marginal band: £75,000 profit: ~22% effective. £100,000: ~23%. £150,000: ~23.7%. £200,000: ~24.4%. £250,000: 25%. Important: thresholds DIVIDE by the number of associated companies, so group structures with multiple companies lose access to the lower small-profits rate proportionally.

What do I need to know about Associated Companies Rule?

Companies are 'associated' if: one controls the other, or the same person/group controls both. Includes: parent and subsidiaries. Companies under common ownership. Companies linked through family relationships in some cases. Impact: thresholds divided by number of associated companies. Example: holding company plus 4 trading subsidiaries = 5 associated. Lower threshold per company: £50,000 / 5 = £10,000. Upper threshold: £250,000 / 5 = £50,000. Each company hits marginal relief and the main rate at lower absolute profit levels than a standalone company would, which is why group structures need careful tax planning.

What Counts as Taxable Profit?

Start with accounting profit. Adjustments to arrive at taxable profit: ADD: depreciation (not allowable). Capital allowances claimed elsewhere. Disallowable expenses (entertainment except staff, fines, etc.). DEDUCT: capital allowances (instead of depreciation — typically more generous). Loss relief. R&D enhanced deductions (SME scheme: 86% additional deduction since April 2023). Patent Box rate: 10% on qualifying patent income. Capital allowances 2026/27: full expensing of qualifying plant and machinery remains available for most companies, allowing 100% of the cost to be deducted from taxable profit in the year of purchase. Keeping clean, categorised records throughout the year makes this figure far more accurate at filing time — QuickBooks tracks income and expenses for limited companies and supports Making Tax Digital for Corporation Tax.

What should I know about R&D Tax Credits?

R&D tax credit scheme: significant relief for innovating companies. SME scheme (from April 2023): qualifying R&D expenditure gets 86% additional deduction (so total deduction = 186% of cost). For loss-making SMEs: surrender losses for cash credit (10% from April 2023). RDEC scheme (large companies and some SMEs): 20% taxable credit. Qualifying activities: scientific or technological advance. Must seek to resolve scientific or technological uncertainty. Software development qualifies if creating genuinely new or improved functionality, not routine bug fixes or using existing tools in a standard way.

Why the Rate You Pay Can Depend on the Size of Your Profits

UK Corporation Tax has, at various points, used a tiered structure rather than a single flat rate for all companies: a lower rate applying to profits below a set threshold, a higher main rate applying above a higher threshold, and marginal relief smoothing the transition for profits that fall between the two thresholds, so the effective rate rises gradually through that band rather than jumping sharply at the boundary. Because these thresholds are also divided among "associated companies" under common control, a group of related companies can find each individual company's thresholds reduced compared to a single standalone company with the same total profit, which is an important and sometimes overlooked detail for business owners running multiple linked companies.

Why Allowable Expenses and Capital Allowances Matter So Much to the Final Bill

Corporation Tax is charged on taxable profit, not revenue, which means every legitimate business expense — staff costs, rent, utilities, and professional fees among them — reduces the tax bill as well as the accounting profit. Capital allowances add a further, often underused, layer: rather than deducting the full cost of qualifying equipment or machinery purchases as a single expense in the year of purchase, capital allowances let a business deduct a defined amount against taxable profit, sometimes in full in the year of purchase for certain categories, which can substantially reduce or even eliminate a tax bill in a year of significant capital investment. Understanding which costs qualify as allowable expenses versus capital allowances — and the timing difference between them — is often where the real planning value in a Corporation Tax calculation lies, beyond simply applying a headline rate to profit.

Marginal Relief Smooths the Jump Between Rate Bands

<p>Rather than a company's entire profit suddenly jumping from the small profits rate to the full main rate the moment it crosses the lower threshold, Marginal Relief provides a gradual taper between the two bands. Companies with profits between the lower and upper limits pay tax at the main rate but then receive a relief that effectively reduces the rate on the portion of profit within that band, so the effective tax rate rises smoothly rather than in a sharp step. Without this relief, a company earning just £1 more than the lower threshold could end up paying a dramatically higher total tax bill than one earning £1 less — the kind of cliff-edge that Marginal Relief exists specifically to avoid. The calculation itself involves a standard fraction applied to the difference between the upper limit and actual profits, and it also interacts with the associated companies rule, since the thresholds themselves get divided between associated companies, shrinking the band over which relief applies for group structures.</p>

Worked Example: Marginal Relief in the Middle Band

A company has taxable profits of £150,000, which sits between the small profits threshold (commonly £50,000) and the main rate threshold (commonly £250,000) where marginal relief applies. Without relief, taxing the whole amount at the main rate (currently around 25%) would give £37,500 due. Marginal relief instead effectively tapers the rate between the small profits rate (currently around 19%) and the main rate across that middle band, using a standard formula: Main rate tax on full profit, minus marginal relief calculated as (Upper Limit − Profit) × (Taxable profit / Profit) × the standard fraction (commonly 3/200). Working through that formula for £150,000 of profit (with no augmented profits adjustment) typically produces an effective tax bill meaningfully below the flat 25% figure — often landing an effective rate somewhere in the low-20s depending on the exact numbers that tax year. Because the thresholds, rates, and the marginal relief fraction are all things that have changed before and can change again in future Budgets, run your company's real numbers through HMRC's own marginal relief calculator or your accountant's software for a figure you can actually file, and treat any specific percentage quoted here as illustrative only.

The Three-Tier System at a Glance

These thresholds are divided between any associated companies a business controls or is controlled by, so a group of companies under common control doesn't multiply the lower-rate band by simply splitting profits across entities — check the associated companies rules carefully if your business has related entities.