Corporation Tax for Small Companies: A Founder's Plain-English Guide to Rates, Marginal Relief and Deadlines
Ask most first-time company directors what rate of corporation tax they pay, and you'll usually get one of two answers: "19%," because that's the number everyone remembers from a few years back, or a shrug, because nobody's actually walked them through it since incorporation.
The real answer is more interesting, and it matters more than it used to, because since 2023 there isn't just one rate anymore - there's a small profits rate, a main rate, and a marginal relief band in between that catches out a surprising number of growing companies.
The three zones
Profits up to £50,000: the small profits rate, 19%. If your company's taxable profit for the accounting period is £50,000 or less, you pay 19% corporation tax on all of it. Straightforward.
Profits over £250,000: the main rate, 25%. Once taxable profit clears £250,000, the whole amount is taxed at 25%.
Profits between £50,000 and £250,000: marginal relief. This is the band that confuses people. You don't simply pay 19% on the first £50,000 and 25% on the rest. Instead, marginal relief applies a sliding calculation that gradually increases your effective rate from 19% up toward 25% as profit rises through the band - and because of how the relief formula works, the effective marginal rate on profit within this zone can actually peak at around 26.5%, before settling back toward 25% as you approach the top of the band.
That's not a typo. For a slice of profit sitting inside the marginal relief zone, you can end up paying a higher effective rate on those pounds than you would on profit above £250,000. It's a quirk of the relief formula, and it's exactly the kind of thing that makes "just apply 19% or 25%" spreadsheet guesses unreliable.
A worked example
Say your company makes £120,000 of taxable profit in the year.
It's above the £50,000 small profits threshold, so you don't get the flat 19% rate.
It's below £250,000, so you don't pay the flat 25% main rate either.
Marginal relief applies, tapering your effective rate somewhere between 19% and 25% depending on exactly where £120,000 sits in the band.
The precise figure depends on the marginal relief formula (which factors in the £50,000 and £250,000 thresholds, adjusted for associated companies and short accounting periods), which is exactly the sort of calculation worth letting software do rather than working out by hand every quarter.
The associated companies trap
If your company is "associated" with another — broadly, under common control, which can include companies owned by the same person or group of people — the £50,000 and £250,000 thresholds get divided between them. Two associated companies each get a £25,000 small profits threshold and £125,000 main rate threshold, not £50,000 and £250,000 each.
This catches out founders who've set up more than one company (a trading company and a separate property company, for instance) without realising the thresholds don't multiply — they split. It's worth checking this if you have any other companies under your control, even ones that aren't actively trading.
When is it actually due
Corporation tax isn't due at the same time as your accounts filing, which is a common source of confusion:
Payment deadline: 9 months and 1 day after the end of your accounting period. If your accounting period ends 31 March, payment is due by 1 January the following year.
Filing deadline for your Company Tax Return: 12 months after the end of your accounting period — later than the payment deadline, which surprises people who assume the two move together.
Large companies (broadly, profits over £1.5 million) pay in quarterly instalments instead, but most small companies fall well outside this.
The gap between the payment deadline and the filing deadline exists because HMRC wants the tax paid based on your own estimate before the return is finalised — which means you need a reasonably accurate profit figure well before your accountant produces the final numbers, not just on the day the return is due.
Why "I'll work it out at year end" is the expensive habit
The most common way small companies overpay, underpay, or get caught short on corporation tax isn't bad advice — it's not looking at the number until it's too late to do anything about it. If you only see your profit position once a year, you lose the ability to:
Time larger purchases or pension contributions to manage which accounting period they fall in.
Set aside cash for the bill as you go, rather than finding it in one lump nine months later.
Spot early if you're drifting into the marginal relief band and understand what that actually means for your effective rate.
Keeping the number visible
This is why FoundersLedger shows a live corporation tax estimate alongside your day-to-day bookkeeping rather than as a once-a-year surprise — as your profit moves, so does the estimate, calculated against the current thresholds and marginal relief rules automatically. You still need your accountant for the final return, but you shouldn't need to wait for them to find out roughly what you owe.