Corporation Tax Rates: What You Need to Know

From 1 April 2023, Corporation Tax in the UK operates on a tiered system. The main rate of 25% applies to companies with taxable profits over £250,000, while the small profits rate of 19% continues to apply to businesses with profits of £50,000 or less. For those falling between these thresholds, marginal relief is used to gradually increase the effective tax rate, avoiding a sharp jump.

The different corporation tax rates are designed to better reflect the size and profitability of your business and to maintain a fair balance in the UK Corporation Tax system.

How to Calculate Corporation Tax for Your Business

To calculate Corporation Tax, you need to start with your taxable profits. If your profits are:

• Up to £50,000: you'll pay the lower rate (small profits rate) of 19%

• Over £250,000: you'll pay the main rate of 25%

• Between £50,000 and £250,000: you'll pay at a tapered rate using marginal relief

For example, a business with augmented profits of £150,000 in a standard accounting period would start with a calculation based on the main rate and then apply marginal relief to reduce the effective tax rate.

Businesses must notify HMRC and ensure they provide sufficient information to allow for accurate calculations. The marginal relief formula for the 2025 financial year uses a fraction of 3/200.

Corporation Tax Changes Introduced from 1 April 2023

From 1 April 2023, several Corporation Tax changes took effect:

• Reintroduction of marginal relief

• Adjustments to thresholds based on the number of associated companies

• Rules affecting non-resident companies and groups with corporate group structures

• Tax treatment for companies with income from the UK continental shelf and ring fence profits

These updates aim to ensure the tax system remains fair and encourages business investment while still collecting appropriate revenue for the government.

Capital Allowances and Business Investment

To help offset capital expenditure, companies can benefit from various capital allowances. One of the most valuable is full expensing, which allows businesses to deduct 100% of eligible capital costs in the year the expenditure is incurred.

Available from 1 April 2023, full expensing applies to new, qualifying plant and machinery assets. This can provide significant tax relief and improve cash flow by reducing your taxable profits immediately—ideal for businesses investing in long-term growth.

This tax deduction is only available to companies subject to UK Corporation Tax, and it does not apply to assets bought for leasing or to certain second-hand purchases.

What If You Have Associated or Non-Resident Companies?

If your company has one or more associated companies, the £50,000 and £250,000 thresholds are divided equally between them. For example, if you have two associated companies, each one’s lower and upper limits for tax purposes become £25,000 and £125,000, respectively.

Non-resident companies that carry on a trade through a UK permanent establishment are also subject to Corporation Tax, but may have different rules around trading losses, interest deductions, and relief eligibility. Always seek further information or professional advice to account for specific circumstances.

Summary

The Corporation Tax system in the UK has become more complex, but also offers more flexibility to support business investment and growth. Whether you’re operating as a small company paying the lower rate, managing a portfolio of associated companies, or investing in equipment that qualifies for full expensing, it’s essential to stay informed and plan ahead.

To ensure you meet your obligations and make the most of available reliefs, speak to our team at Herbert Lewis Williams & Associates. We’ll help you understand your liability, calculate Corporation Tax accurately, and make smart decisions to support your business.