Corporation tax

Corporation tax planning is an essential part of running a business. Understanding the rates, reliefs, and deductions available can minimise your tax liabilities and improve your cashflow. For personalised advice on managing your corporation tax obligations, contact us.

Understanding rates and planning opportunities

Corporation tax is a key consideration for businesses operating in the UK. Understanding the applicable rates, reliefs, and deadlines for the 2025/26 financial year is essential for effective tax planning.

Corporation tax rates

The corporation tax rate structure is as follows:

• Main rate (25%): Applies to companies with profits over £250,000.
• Small profits rate (19%): Applies to companies earning £50,000 or less.
• Marginal relief: For companies with profits between £50,001 and £250,000, marginal relief reduces the effective tax rate below 25%. The relief tapers as profits approach the £250,000 threshold.

The profit thresholds are proportionately reduced if your company has associated companies or a shorter accounting period.

Payment deadlines

• Small companies: Corporation tax is due 9 months and 1 day after the end of the accounting period.
• Large companies: Companies with annual profits exceeding £1.5 million must pay corporation tax in quarterly instalments.
• Very large companies: Companies with annual profits over £20 million have earlier instalment deadlines.

Key deductions and reliefs

– Business expenses:

• Only expenses incurred “wholly and exclusively” for business purposes are deductible.
• Examples include salaries, rent, utilities, marketing, and professional fees.

– Capital allowances:

• Over time, deduct the cost of qualifying capital assets, such as equipment, machinery, or vehicles.
• The annual investment allowance (AIA) allows a 100% deduction on qualifying expenditures up to £1 million.

– Research and development (R&D) tax credits:

• For accounting periods starting between 1 April 2023 and 31 March 2024, small and medium-sized enterprises (SMEs) can claim a 186% deduction on qualifying R&D costs. Large companies may claim the R&D expenditure credit (RDEC), worth 20% of qualifying expenditure.
• For periods starting on or after 1 April 2024, a new merged R&D tax relief scheme applies. Under this scheme, all companies can claim a taxable R&D expenditure credit at a rate of 20% on qualifying costs. R&D-intensive SMEs may also benefit from enhanced R&D intensive support, which allows for a 186% deduction and a payable tax credit of up to 14.5% of surrenderable losses.

– Patent box relief:

• Profits from patented inventions and certain intellectual property can benefit from a reduced corporation tax rate of 10%.

– Loss relief:

• Trading losses can be carried forward to offset future profits or carried back to offset the previous year’s taxable profits.

Key considerations

• Tax-efficient profit extraction: Plan how to withdraw profits, balancing dividends, salary, and benefits to optimise tax efficiency.
• Director’s bonuses: If you plan to pay bonuses, ensure they are accrued in your annual accounts and paid within nine months of the year-end to claim a deduction in the current accounting period.
• Pension contributions: Employer contributions to pensions are deductible but must be paid before the year-end to qualify for relief.
• Associated companies: Monitor the impact of associated companies on your profit thresholds for marginal relief or instalment payments.
• Investment decisions: Make the most of the AIA or other capital allowances to reduce taxable profits.