Corporation tax rates UK had been following a single flat rate system for all businesses regardless of size up until April 2023. There are now two thresholds for the UK corporation tax: small profits and main rate.
Understanding corporate tax liability is crucial for every business, no matter how much it earns. Learn more about the current rates, how marginal relief works, sectors under special tax regimes, how to pay tax online, and more in this article.
What Are Corporation Tax Rates UK 2024/25?
The corporation tax rates UK history show a trend of decrease. It was at a flat rate of 28% in 2010 until it decreased to 19% in 2015. This flat rate remained up until 2023 at which it rose to 25%.
Corporation tax rates and reliefs depend on the business’ total taxable profits in an accounting period. Here are the corporation tax rates in UK for the current tax year and onwards:
| Tax Bracket | Taxable Income | Rates |
|---|---|---|
|
Small Profits Rate |
Less than £50,000 |
19% |
|
Main Rate |
More than £250,000 |
25% |
|
Marginal Relief Fraction |
Between £50,000 and £250,000 |
3/200 |
Marginal relief reduces a company’s tax liability if its profits fall within the upper and lower limit (discussed further below). Take note that the above rates only apply to non-ring fence (oil and gas) companies. Special tax treatments apply to other sectors as part of anti-avoidance tax measures.
Non-resident taxpayers with a permanent establishment in the UK are subject to the same corporation tax rate system, as well as clubs, co-operatives, or unincorporated organisations. Foreign owners of UK establishments may want to check our double taxation guide.
They can also use our Corporation Tax Calculator UK to get a rough estimate of business tax liability, whether they are a UK-resident business or not. To arrive at the most accurate calculation, our tax experts consider all aspects of the process and double-check the results.
How Does Marginal Relief Work?
A company taxed for its profits between £50,000 and £250,000 gets a reduced corporation tax bill through the marginal rate relief. The marginal relief bridges the gap between the lower and upper thresholds, allowing eligible businesses to pay lower than the main rate of 25%.
The marginal relief for corporation tax rates associated companies work by reducing the profits between the upper and lower limits for short accounting periods and is based on how many associated companies the business has.
This means that the more associated companies a business has, the more the thresholds will get adjusted and divided. This moves the business to the lower threshold, benefiting from the adjusted reduced rates.
Note that ring-fence companies have different rates. HMRC offers an online calculator to help businesses work out how much marginal relief they can get. For more accurate results, working with a tax expert is highly recommended.
There are many other ways to reduce corporation tax. Claiming tax-deductible expense is a substantial relief to businesses with qualifying expenditures. Read our comprehensive guide on capital allowances, which explores all the latest allowances applicable to the 2024/25 tax year.
What Is Corporation Tax on Chargeable Gains?
Only sole traders or business partners pay capital gains tax. When businesses sell or dispose of their assets, they pay corporation tax on the profits or chargeable gains. The chargeable gain is calculated based on the difference between the asset’s original purchase price and how much it was sold for.
They can use the United Kingdom corporation tax guide on Indexation Allowances rates to compare how much the asset’s value has increased over the years. There are several ways to calculate corporation tax on chargeable gains to ensure accurate value. Hiring tax accountants will ensure businesses get the most accurate results.
What Is Corporation Tax on Ring Fence Profits?
Ring fence companies pay ring fence corporation tax (RFCT), which is set at different rates. These companies specifically earn from oil and gas production in the UK and the UK Continental Shelf, including the North Sea, the North Atlantic Ocean, the Irish Sea, and the English Channel.
For the current tax year, here are the rates for ring fence profits:
| Tax Bracket | Taxable Income | Rates |
|---|---|---|
|
Small Ring Fence Rate |
Less than £50,000 |
19% |
|
Main Ring Fence Rate |
More than £250,000 |
30% |
|
Ring Fence Fraction |
Between £50,000 and £250,000 |
11/400 |
What Are the Special Corporation Tax Regimes?
Aside from the ring fence corporation tax, otherwise called the oil and gas company regime, other sectors (and very large companies) in the UK get a separate tax treatment, especially on the aspects of tax avoidance, R&D credits, and others. They include the following:
Life Insurance Companies
The life insurance sector follows different corporation tax rates and rules for calculating profits.
Tonnage Companies
Companies operating qualifying ships can opt for Tonnage Tax, which calculates profits based on the net tonnage of ships rather than traditional profits. This election must be made within specific timeframes, with recent changes extending the entry period and adjusting capital allowances.
Banking Companies
Banks face a supplementary tax of 3% on profits over GBP 100 million starting April 2023, down from the previous 8%. Restrictions apply to loss utilisation based on when the losses occurred.
Real Estate Investment Trust (REIT) Companies
UK REITs are exempt from UK tax on rental income and gains from qualifying property rentals. Profits from non-property rental activities are taxed normally, and investors are taxed on distributed rental income, with possible exemptions and reclaim options depending on their tax status and double tax treaties.
Qualifying Asset Holding Companies (QAHCs)
Introduced in April 2022 and amended in 2023, the QAHC regime aims to remove tax barriers for UK holding companies. QAHCs benefit from exemptions on gains from certain disposals, profits from overseas property, and modified rules for interest deductions, among others.
Residential Property Developer Tax (RPDT) Companies
Effective from April 2022, the RPDT applies a 4% tax on annual profits exceeding GBP 25 million from residential property development, targeting companies or groups engaged in this trade.
How Do You Pay Corporation Tax?
Small businesses must pay corporation tax for nine months and one day after the end of their accounting period. HMRC incentivises advance corporation tax payments at 0.5% and impose interest on late payment otherwise.
The fastest way to pay corporation tax is online bank transfer, which could be through either of the following:
- Faster Payments
- CHAPS
Read our guide on how to pay corporation tax online for small businesses for more information.
Other Frequently Asked Questions
Companies do not need to pay corporation tax on dividend payments; only the recipients when they exceed the dividend allowance.
Sole traders and business partners do not pay corporation tax. Learn more about sole traders’ tax obligations here.
HMRC will send a company a warning letter or a reminder that their corporation tax is overdue. Companies facing financial difficulties may qualify for the corporation tax payment plan option.
If a company in the UK closes, it must still file a company tax return and pay corporation tax on any taxable profits, including trading income, investment income, and chargeable gains from the sale of goods or assets.
Non-domiciled individuals in the UK do not pay tax on foreign income unless it exceeds £2,000 and is brought into the UK. A person is considered a UK resident for tax purposes if they spend 183 days or more in the UK within a tax year.
Why Legend Financial for Your Company Tax Returns
Your business’ tax position can be optimised better with effective tax planning. There are many ways to reduce corporation tax rates UK which Legend Financial will help you with. We make it our goal to reduce your corporate obligations according to your situation, beyond merely preparing your tax returns.
Legend Financial consists of corporate tax accountants renowned for their professionalism, efficiency, and customer-centric approach throughout the UK. Most importantly, we offer comprehensive services for your business, from tax and accountancy to business development. Reach us today!
