Corporation Tax in 2026: A Practical Guide for Limited Companies

Every limited company pays corporation tax on its profits. That much is simple. But how the tax is calculated, what you can deduct, when you need to pay, and what happens if you get it wrong – that’s where most directors either lose money or lose sleep.

The rates themselves haven’t changed for 2026/27. But late filing penalties have doubled, capital allowance rules have been adjusted, and dividend tax increases mean profit extraction strategies need rethinking.

Here’s what you need to know to stay compliant and keep your tax bill as low as it should be.

Who Pays Corporation Tax?

Corporation tax applies to all limited companies registered in the UK, as well as foreign companies with a UK branch or office. It’s charged on your company’s taxable profits, which include trading profits, investment income, and chargeable gains from selling assets.

It doesn’t matter whether you’re a one-person company or a business with hundreds of employees. If you’re operating through a limited company, you’re within the corporation tax regime.

The Rates for 2026/27

Corporation tax operates on a two-tier system. The rates haven’t moved since April 2023, and the government has committed to capping the main rate at 25% for the duration of this parliament.

The current rates are:

• Small profits rate: 19% on taxable profits of £50,000 or less
• Main rate: 25% on taxable profits of £250,000 or more
• Marginal relief: applies to profits between £50,000 and £250,000, creating a gradual increase from 19% to 25%

Marginal relief is the bit that often confuses people. If your company’s profits fall between the two thresholds, you don’t simply pay 25%. Instead, HMRC applies a formula that effectively taxes the profits above £50,000 at a higher rate to smooth the transition. The result is an effective rate somewhere between 19% and 25%.

Watch Out for Associated Companies

If your company has associated companies – broadly, companies under common control – the £50,000 and £250,000 thresholds are divided equally between them.

So if you control two companies, each one’s small profits threshold drops to £25,000 and the main rate threshold drops to £125,000. This catches more businesses than you’d expect, particularly where directors have set up more than one company for different parts of their business.

Deadlines: Filing and Payment

Corporation tax has two separate deadlines, and confusing them is one of the most common mistakes directors make.

• Payment deadline: nine months and one day after the end of your accounting period
• Filing deadline: twelve months after the end of your accounting period

So if your accounting period ends on 31 March 2026, your corporation tax payment is due by 1 January 2027, and your CT600 return must be filed by 31 March 2027.

The payment comes first. Many directors assume filing and payment happen together – they don’t. You’re expected to calculate what you owe and pay it before the return is even due.

Doubled Late Filing Penalties from April 2026

This is new. For returns with a filing date of 1 April 2026 or later, late filing penalties have doubled. The old penalties had been unchanged since 1998, and HMRC decided their deterrent effect had been eroded by inflation.

The new penalty structure looks like this:

• 1 day late: £200 (was £100)
• 3 months late: a further £200 (was £100)
• 6 months late: 10% of unpaid tax, on top of the fixed penalties
• 12 months late: a further 10% of unpaid tax

If your company has filed late in three consecutive accounting periods, the fixed penalties increase to £500 each (was £250), rising to £1,000 (was £500) at the three-month mark.

These penalties apply regardless of whether any tax is actually owed. Even a dormant company with no profits will be penalised for filing late.

On top of the filing penalties, HMRC charges interest on any corporation tax that remains unpaid past the payment deadline. Interest accrues daily from the due date until the balance is cleared.

What You Can Deduct

Not everything your company spends is deductible for corporation tax purposes, but most genuine business expenses are. Getting the deductions right is one of the most effective ways to reduce your tax bill.

Day-to-Day Business Expenses

Most ordinary running costs are deductible: staff salaries, rent, utilities, insurance, professional fees, marketing, software subscriptions, travel, and so on. The key test is that the expense must be incurred “wholly and exclusively” for the purposes of the business.

Capital Allowances

When your company buys assets – equipment, machinery, vehicles, IT hardware – the cost usually can’t be deducted as a revenue expense in one go. Instead, you claim capital allowances, which spread the tax relief over time.

The main allowances available for 2026/27 include:

• Full expensing: 100% first-year relief on qualifying new plant and machinery for companies. This is a permanent measure and is one of the most generous allowances available.
• Annual Investment Allowance (AIA): £1 million. This covers most types of plant and machinery, including second-hand assets. Most small and medium-sized companies will never exceed this limit.
• Writing-down allowance (main pool): reduced to 14% from April 2026 (down from 18%). This matters for assets that don’t qualify for full expensing or the AIA.
• Writing-down allowance (special rate pool): 6%, unchanged. This covers items like integral features of buildings and long-life assets.

The reduction in the main writing-down allowance from 18% to 14% was announced in the November 2025 Budget. It won’t affect most small companies that claim the AIA or full expensing, but it will matter for businesses with large asset portfolios or those that have exceeded the AIA limit.

Research and Development Tax Relief

Companies that spend money on qualifying R&D activities can claim additional tax relief through the merged R&D scheme. This provides an enhanced deduction of 186% of qualifying R&D expenditure, or a 14.7% tax credit for loss-making companies.

The rules around what counts as qualifying R&D are strict, and HMRC has been increasing scrutiny of claims in recent years. If you think your company might be eligible, it’s worth getting specialist advice before filing a claim – a poorly prepared claim is more likely to trigger an enquiry than no claim at all.

Double Point has a dedicated page on R&D tax credits if you’d like to explore this further.

Pension Contributions

Employer pension contributions are a deductible business expense for corporation tax purposes. They reduce your company’s taxable profits, and they’re not subject to National Insurance. This makes pension contributions one of the most tax-efficient ways to extract value from your company – particularly for directors who have already taken a salary and dividends.

The annual allowance for pension contributions is £60,000 (including any personal contributions), but you may be able to carry forward unused allowance from the previous three years.

Profit Extraction: Getting the Money Out

Corporation tax is only the first layer of tax your company’s profits face. The money still needs to reach you – and how you take it out has a major impact on your overall tax position.

Most director-shareholders use a combination of salary and dividends. The typical approach is to take a salary up to the personal allowance of £12,570 (avoiding income tax while maintaining NIC credits), and then extract further profits as dividends.

From April 2026, dividend tax rates increased by two percentage points for basic and higher rate taxpayers:

• 10.75% for basic rate (up from 8.75%)
• 35.75% for higher rate (up from 33.75%)
• 39.35% for additional rate (unchanged)

The dividend allowance remains at just £500. Above that, everything is taxed.

These increases mean that the combined tax burden on company profits extracted as dividends is higher than it’s been in years. The optimal split between salary, dividends, pension contributions, and retaining profits in the company will depend on your individual circumstances – and it’s worth reviewing annually as the rates change.

Our tax planning service is designed to help with exactly this kind of analysis.

Planning Ahead

A few practical things that make a real difference to your corporation tax position:

• Time your expenses carefully. If your company is approaching its year end and has profits to offset, bringing forward planned spending on equipment, software, or marketing can reduce the current year’s tax bill.
• Claim everything you’re entitled to. Many companies miss allowable deductions – particularly around home office costs for directors, professional subscriptions, and training.
• Review your accounting period end date. Your year end affects when you pay and how your profits interact with rate thresholds. It’s not something you change often, but it’s worth getting right from the start.
• Don’t ignore marginal relief. If your profits are between £50,000 and £250,000, marginal relief can make a meaningful difference. Make sure it’s being claimed correctly on your CT600.
• File early, pay on time. With penalties now doubled, the cost of a late return is no longer trivial. Aim to have your return ready well before the deadline, not the week of.

How Double Point Can Help

Corporation tax isn’t difficult in principle, but getting it right – and making sure you’re not paying more than you need to – takes proper planning and attention to detail.

At Double Point, we handle corporation tax returns for companies across a range of industries and sizes. We prepare your CT600, calculate your liability, make sure all available allowances and reliefs are claimed, and file everything on time. We also advise on profit extraction, helping you find the most tax-efficient way to take money from your company given the current rates.

Whether you’re a newly incorporated business filing for the first time or an established company looking for a more proactive approach to tax, we’re here to help.

Book a free consultation with us today and let’s make sure your corporation tax is working as hard as your business.