UK Corporation Tax in 2026: Rates, Reliefs and Planning for Company Owners

Corporation tax is the single largest tax liability for many privately owned businesses in the UK, yet it remains one of the least understood. Since April 2023, the landscape changed substantially: the flat 19% rate was replaced by a two-tier structure that creates meaningful incentives — and traps — depending on how a group of companies is structured. For internationally mobile business owners, understanding the mechanics before making decisions about holding structures, profit extraction and investment timing can produce significant savings over time.

This guide sets out the current position as of the 2026/27 tax year and highlights the key planning considerations for owners of UK-resident companies.

The Two-Rate Structure

The UK corporation tax system currently operates with two headline rates:

Small profits rate — 19%. This applies to companies with taxable profits of up to £50,000 per year. Importantly, this is not a 19% flat rate on all profits; it applies only where the entire profits of the company fall beneath the lower limit.

Main rate — 25%. This applies where a company's taxable profits exceed £250,000. At this level, the company pays 25% on all its taxable profit.

Marginal relief band — £50,001 to £250,000. For profits falling between these limits, a tapering mechanism applies. The effective marginal rate within this band is approximately 26.5% — higher than the main rate. This is a common source of confusion: it is not the case that you "pay more tax as you earn more" in an absolute sense, but the marginal rate on each additional pound of profit in this band is 26.5%, meaning careful profit timing can matter.

The formula is: take the main rate of 25% on the full profits, then subtract a fraction. The practical outcome is that effective tax rates scale smoothly from 19% to 25% as profits rise from £50,000 to £250,000. Above £250,000, the full 25% rate applies with no marginal taper.

Associated Companies: The Most Common Planning Trap

The thresholds above are divided by the number of "associated companies" a company has. Two companies are associated if one controls the other, or if both are under common control — broadly, the same shareholder controls both.

Practical example: a business owner has three separate limited companies — one trading company, one property holding company and one investment holding company. All three are controlled by the same individual. The lower limit for each company is £50,000 ÷ 3 = £16,667. The upper limit for each is £250,000 ÷ 3 = £83,333.

This means a company with profits of only £70,000 — which would otherwise be in the marginal band — can face the full 25% main rate if there are two other associated companies pushing it above the divided threshold.

The associated companies rule is one of the most common oversights when business owners create multiple family entities for asset protection or succession planning purposes. Before creating a new company — even a dormant holding vehicle — consider the corporation tax impact on your existing companies.

Full Expensing: A Genuinely Generous Relief

From April 2023, and made permanent in the Autumn Statement 2023, "full expensing" replaced the super-deduction. Under full expensing, companies can deduct 100% of qualifying capital expenditure on plant and machinery in the year of purchase against their taxable profits.

Prior to full expensing, the Annual Investment Allowance (AIA) at £1 million provided first-year relief for most SMEs. Full expensing goes further for companies with significant capital programmes, because it applies without a cap (subject to qualifying conditions).

Qualifying expenditure includes most tangible fixed assets used in the business: machinery, IT equipment, vehicles (not cars on standard rates), and most production equipment. It does not apply to property (land and buildings have their own capital allowances regime under Structures and Buildings Allowance at 3% per year).

Timing capital expenditure to fall within the accounting period when profits are highest, and therefore the tax rate is highest, is a straightforward planning step that company owners often overlook.

R&D Tax Credits: Post-April 2024 Merged Scheme

The UK's research and development relief underwent a significant reform in April 2024, consolidating the previous SME scheme and the Research and Development Expenditure Credit (RDEC) into a single merged scheme.

Under the merged scheme:

• Most companies claim an above-the-line credit of 20% of qualifying R&D expenditure.
• The credit reduces the corporation tax liability; any excess is payable as a cash credit.
• For loss-making SMEs with intensive R&D activity, an enhanced R&D intensive support (ERIS) scheme provides 27% relief, but the eligibility criteria are strict (at least 30% of total expenditure must be R&D).

The definition of qualifying R&D expenditure includes staff costs, materials and consumables used in R&D, certain externally provided workers and subcontractors, and software used directly in R&D activities. Pure capital expenditure and the cost of assets produced by the R&D are generally excluded.

The reforms followed several years of high levels of fraudulent R&D claims, and HMRC scrutiny is now substantially increased. Claims require a detailed technical narrative and should be reviewed by a suitably qualified adviser, not simply a claims management firm operating on contingency.

Losses: How They Work and How to Plan Around Them

Trade losses within a single company can be:

• Set against other profits of the same period.
• Carried back one year against total profits (generating a repayment of tax already paid — valuable for cash flow).
• Carried forward indefinitely against profits of the same trade.
• Surrendered to group companies via group relief (see below).

Group relief allows current-year trading losses to be surrendered by one group company to another for offset against the latter's profits. A group for this purpose requires a 75% ownership relationship. The receiving company effectively reduces its taxable profits, lowering its tax bill. Group relief requires a formal claim and must be made within the time limit (generally two years from the end of the relevant accounting period).

Carried-forward loss restrictions: for large companies with profits exceeding £5 million, carried-forward losses can only be offset against 50% of profits above that threshold in any given year. For most privately owned companies this is not a constraint in practice.

Accounting Period and Rate Interaction

If a company's accounting period straddles the date on which a rate change takes effect, profits must be time-apportioned between the relevant periods. This was relevant for periods ending after April 2023 when the two-tier structure was introduced. It remains relevant for any future rate changes.

Dividend Extraction and the Overall Tax Rate

Corporation tax does not exist in isolation. For owner-managed companies, the total tax cost of extracting profits must account for:

1. Corporation tax on the profit.
2. Dividend tax on the distribution (8.75% basic rate; 33.75% higher rate; 39.35% additional rate, as of 2026/27).

For a higher-rate taxpaying director taking dividends from a company paying 25% corporation tax, the combined effective rate is approximately 44.9% — lower than the income tax plus National Insurance that would have applied on employment income, but the gap has narrowed considerably since the corporation tax increase in April 2023.

For owner-managed companies with profits in the marginal band (£50,000–£250,000), the high marginal effective rate of 26.5% CT plus dividend tax can push combined effective rates above 50% in some scenarios. Pension contributions from the company — deductible for corporation tax and free of National Insurance — remain one of the most efficient extraction routes for business owners.

Key Planning Points for Internationally Mobile Business Owners

Location of management and control: a company incorporated in the UK is UK-resident for corporation tax purposes by default. However, if a company is centrally managed and controlled from outside the UK, it may be treated as non-UK resident even if incorporated here. Conversely, a foreign-incorporated company managed from the UK is treated as UK-resident. For business owners who relocate, this is a critical consideration: if you manage a UK company's affairs while living in, say, Cyprus or the UAE, HMRC may argue that central management and control has shifted — with potentially complex consequences.

Branch vs subsidiary for UK operations of overseas groups: a UK branch of a foreign company pays UK corporation tax on its UK trading profits only. A UK subsidiary pays corporation tax as a UK resident. The choice involves credit availability under double tax treaties, deductibility of head office charges, and repatriation of profits.

Transfer pricing: transactions between related companies in different jurisdictions must be priced as if carried out at arm's length. HMRC transfer pricing rules apply to UK companies in international groups and are increasingly enforced. Intercompany loans, management charges and royalties all require proper documentation.

As with all tax planning, the rules in this area change frequently and individual circumstances vary considerably. The figures in this guide apply as of the 2026/27 tax year. Specific advice from a qualified UK tax adviser should always be sought before making significant structural or commercial decisions.

How Global Investments Can Help

Global Investments works with high-net-worth business owners across multiple jurisdictions, coordinating UK corporation tax planning with your overall international tax and wealth structure. Whether you are optimising the extraction of profits from your UK company, considering a corporate restructure ahead of a sale, or managing the interaction between your UK and overseas entities, our advisers can help you navigate the rules effectively. Contact our team for a confidential initial conversation.