Limited Company Tax UK: Corporation Tax Rates, Allowances, and Filing Guide

Limited company tax refers to the collective financial obligations and Corporation Tax liabilities owed by incorporated businesses operating in the UK on their annual taxable profits, distinct from personal income tax and subject to specific statutory filing deadlines set by HM Revenue and Customs (HMRC).

Key Takeaway

• Corporation Tax rates span a graduated three-tier structure ranging from 19% to 25%, determined by annual taxable profit levels.

• Marginal relief applies to profits between £50,000 and £250,000, smoothing the transition between the small profits rate and main rate.

• Allowable business expenses must be incurred wholly and exclusively for trade, directly reducing corporate taxable profits before calculation.

• Company Tax Returns (CT600) and statutory accounts must be submitted to HMRC within 12 months following the end of the accounting period.

What Is the Current Limited Company Tax Rate for 2026/27?

Limited companies in the UK pay Corporation Tax on their total taxable profits, which include trading profits, investment gains, and any chargeable gains from selling assets.

Entrepreneurs establishing a new venture often complete a formal limited company formation process before addressing ongoing tax liabilities, which depend on the level of annual profits generated during the accounting period, governed by thresholds established under the Corporation Tax Act 2010.

Companies with profits up to the lower threshold pay the small profits rate, while those exceeding the upper limit pay the main rate.

Businesses with profits falling between these two thresholds are eligible for marginal relief, ensuring a smooth transition between tax bands rather than an abrupt jump, especially important for owner-managers learning how dividends work alongside corporate profit extraction strategies.

Profit Band	Corporation Tax Rate / Mechanism	Applicable Thresholds
Small Profits Rate	19%	Profits up to £50,000
Marginal Relief	Graduated tapered rate	Profits between £50,001 and £250,000
Main Rate	25%	Profits exceeding £250,000

Calculating taxable profits accurately requires deducting all allowable business costs, trading losses, and capital allowances from total turnover before applying these statutory rates. Directors must monitor profit fluctuations closely, especially when associated companies share the profit thresholds, which divides the limits proportionally.

How Does Marginal Relief Affect Limited Company Tax?

Marginal relief provides a sliding scale of tax relief for companies with profits falling inside the transitional band between £50,000 and £250,000. Rather than charging a flat 25% across all profits once the upper threshold is crossed, the mechanism reduces the total tax payable through a statutory formula set by HM Treasury.

• The Taper Formula: The relief amount is calculated using a fraction (the marginal relief fraction) multiplied by the upper limit minus total profits, multiplied by total profits divided by total taxable profits.

• Effective Marginal Rate: Incremental profits earned within this bracket face an effective marginal tax rate of up to 26.5%, which can temporarily exceed the headline 25% main rate.

• Associated Company Adjustments: Where an enterprise controls multiple associated companies, the £50,000 and £250,000 thresholds are divided equally among them, lowering the point at which marginal relief and main rates apply.

In practice, managing income and expenditure near the £50,000 and £250,000 boundaries requires careful timing of invoices and asset purchases to avoid sudden jumps in effective corporate tax rates.

What Expenses Can a Business Claim to Reduce a Company Tax Bill?

Limited companies can significantly reduce their taxable profits by claiming tax-deductible business expenses, provided those costs are incurred wholly and exclusively for the purposes of the trade. Expenses must be properly documented with receipts and paid through business banking accounts to withstand compliance checks by HMRC.

• Office and Administrative Costs: Stationery, telecommunications, software subscriptions, professional indemnity insurance, and accounting software fees.

• Travel and Subsistence: Train fares, hotel accommodations for business trips, and subsistence costs incurred during overnight stays away from the permanent workplace.

• Staff Salaries and Training: Employee wages, employer National Insurance contributions, pension contributions, and professional training courses relevant to the business.

• Marketing and Advertising: Website hosting fees, digital marketing campaigns, promotional materials, and client entertainment if strictly structured under specific staff welfare exemptions.

Personal expenses, non-business travel, and client hospitality that goes beyond standard promotional events cannot be claimed as tax-deductible business costs. Claiming non-allowable expenses triggers compliance penalties during a company tax return audit.

What Are the Key Tax Deadlines and Payment Schedules to Know?

Managing corporate tax obligations requires strict adherence to statutory deadlines set by HM Revenue and Customs and Companies House. Failing to meet these dates results in automated financial penalties and interest charges.

Compliance Requirement	Statutory Deadline	Governing Authority
Corporation Tax Payment	9 months and 1 day after the accounting period end	HM Revenue and Customs (HMRC)
Company Tax Return (CT600)	12 months after the accounting period end	HM Revenue and Customs (HMRC)
Statutory Annual Accounts	9 months after the accounting period end	Companies House
Confirmation Statement	14 days after each 12-month review period	Companies House

Corporation tax payment obligations operate on a significantly shorter timeline than the filing deadline. Payment for most small and medium-sized limited companies is due exactly 9 months and 1 day following the end of the accounting period, requiring proactive financial planning well before the full return is submitted.

How and When to Pay Limited Company Tax to HMRC?

Filing corporate tax obligations correctly requires a systematic approach to accounting data, digital submissions, and fund transfers.

1. Maintain Accurate Accounting Records: Track all business transactions, invoices, receipts, and bank statements continuously throughout the financial year.

2. Determine the Accounting Period: Establish the company’s financial year-end and prepare statutory annual accounts in compliance with the Companies Act 2006.

3. Calculate Corporation Tax Liability: Compute taxable profits, apply allowable expenses, deduct capital allowances, and apply marginal relief calculations where applicable.

4. Submit the Company Tax Return (CT600): File the electronic CT600 return along with statutory accounts to HMRC via the online portal within 12 months of the accounting period end.

5. Transfer Payment via Approved Methods: Pay Corporation Tax electronically using Faster Payments, Online Banking, Direct Debit, or corporate debit card quoting the unique 17-character Corporation Tax reference number.

6. Deliver Accounts to Companies House: Submit confirmation statements and company accounts within 9 months of the financial year-end.

What Happens If a Company Files or Pays Late?

Failing to meet HMRC deadlines for Corporation Tax returns or payments triggers an escalating structure of automatic financial penalties, interest charges, and compliance reviews under the Finance Act framework.

• Immediate Late Filing Penalties: Filing a Company Tax Return (CT600) one day late results in an immediate fixed penalty, which increases substantially if the return remains outstanding after three or six months.

• Determinations and Estimates: If a return is severely delayed, HMRC issues a formal determination estimating the tax due, which legally binds the company unless replaced by an actual return.

• Interest on Overdue Tax: Daily interest accrues automatically on any unpaid Corporation Tax from the official due date (9 months and 1 day post accounting period) until the balance is settled in full.

• Compliance Investigations: Persistent late filing or delayed payments raise the risk of targeted compliance checks by HMRC officers into wider business records and statutory accounts.

What Are the Most Common Limited Company Tax Mistakes?

Enterprise compliance audits frequently uncover recurring reporting errors that lead to unexpected tax adjustments, interest assessments, and administrative penalties.

• Mixing Personal and Business Expenses: Claiming personal grocery bills, domestic utility costs, or non-business travel expenses, such as those mistakenly incurred when buying property through a limited company for personal use, as corporate deductions violates the wholly and exclusively rule.

• Failing to Time-Apportion Thresholds: Applying full annual profit thresholds (£50,000 / £250,000) to short accounting periods without proportional reduction results in incorrect marginal relief calculations.

• Overlooking Capital Allowance Limits: Confusing revenue repairs with capital asset improvements, or failing to claim the Annual Investment Allowance correctly on eligible plant and machinery.

• Miscalculating Associated Company Limits: Neglecting to divide profit thresholds when a single director controls multiple associated corporate entities.

• Missing Payment Deadlines: Confusing the 12-month filing deadline with the 9-month and 1-day payment deadline, leading to unexpected late payment interest.

Conclusion

Navigating limited company tax compliance requires balancing accurate profit tracking against statutory Corporation Tax rates, marginal relief boundaries, and allowable expense rules.

Establishing rigorous bookkeeping workflows, monitoring payment deadlines strictly at 9 months and 1 day post accounting period, and separating personal spending from corporate accounts ensures full alignment with HMRC guidelines.

Business owners should maintain complete digital records and coordinate proactively with qualified professionals to secure long-term tax efficiency.

Disclaimer: This information is for educational purposes and does not constitute formal financial, tax, or legal advice; consult a qualified accountant for your business.

FAQs

What can I claim through my limited company tax free?

Companies can claim allowable business expenses tax-free, including business travel, professional insurance, software subscriptions, office rent, employer pension contributions, and qualifying staff trivial benefits under £50.

Do I pay tax on money left in my limited company?

Retained profits left inside a limited company are subject only to Corporation Tax rather than personal income tax. Personal tax liabilities apply only when funds are officially extracted via salary, director loans, or dividend distributions.

Do you pay less tax as a ltd company?

Operating through a limited company often reduces overall tax liabilities compared to sole trader structures once profits exceed personal living thresholds, due to corporate tax retention options and tax-efficient dividend extraction.

How do I avoid 25% Corporation Tax?

Companies manage tax liabilities by keeping taxable profits below £50,000 for the 19% rate, utilizing marginal relief bands, maximising allowable business expenses, and timing capital asset purchases strategically.

What is the deadline for filing a Company Tax Return?

The electronic Company Tax Return (CT600) and statutory accounts must be submitted to HMRC within 12 months following the end of the company’s accounting period.