UK Corporation Tax Rates 2025: Complete Small Business Guide

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UK Corporation Tax Rates 2025: Complete Guide for Small Businesses

Understanding UK corporation tax rates 2025 is essential for every limited company, from startups to established businesses. With the current two-tier system and various reliefs available, knowing how these UK corporation tax rates 2025 apply to your business can significantly impact your tax planning and cash flow management.

This comprehensive guide covers everything you need to know about UK corporation tax rates 2025, including current rates, thresholds, reliefs, and practical examples to help you calculate your company’s tax liability accurately.

UK Corporation Tax Rates 2025: Current Structure

Main Corporation Tax Rates

The UK corporation tax system operates on a two-tier structure for 2025:

Small Profits Rate:

  • Rate: 19%
  • Applies to: Companies with profits up to £50,000
  • Unchanged from 2024

Main Rate:

  • Rate: 25%
  • Applies to: Companies with profits over £250,000
  • Introduced April 2023, continues through 2025

Marginal Relief Rate:

  • Rate: Between 19% and 25% (sliding scale)
  • Applies to: Companies with profits between £50,001 and £250,000
  • Calculated using marginal relief formula

Source: HMRC Corporation Tax rates and allowances

How UK Corporation Tax Rates 2025 Are Applied

Profit Bands Explained:

  • £0 – £50,000: 19% corporation tax rate
  • £50,001 – £250,000: Marginal relief applies (effective rate between 19-25%)
  • £250,001+: 25% corporation tax rate

Important Note: These thresholds apply to “augmented profits” which include both taxable profits and franked investment income (such as dividends from other UK companies).

UK Corporation Tax Rates 2025: Marginal Relief Calculation

Understanding Marginal Relief

Companies with profits between £50,000 and £250,000 benefit from marginal relief, which gradually increases the effective tax rate from 19% to 25%.

Marginal Relief Formula:

Marginal Relief = (Upper Limit - Augmented Profits) × Standard Fraction
Where:
- Upper Limit = £250,000
- Standard Fraction = 3/200

Effective Tax Rate Calculation:

Corporation Tax = (Profits × 25%) - Marginal Relief

Practical Example: Marginal Relief

Company with £150,000 profits:

  1. Basic calculation: £150,000 × 25% = £37,500
  2. Marginal relief: (£250,000 – £150,000) × 3/200 = £1,500
  3. Final tax: £37,500 – £1,500 = £36,000
  4. Effective rate: £36,000 ÷ £150,000 = 24%

UK Corporation Tax Rates 2025: Associated Companies Impact

Associated Companies Rules

When calculating UK corporation tax rates 2025, the profit thresholds are divided by the number of associated companies:

Associated Company Definition:

  • Companies under common control
  • Parent-subsidiary relationships
  • Companies controlled by the same person(s)

Threshold Adjustment:

  • One associated company: Thresholds halved (£25,000 and £125,000)
  • Two associated companies: Thresholds divided by three
  • Three associated companies: Thresholds divided by four

Example: Company with one associated company:

  • Small profits rate: Up to £25,000 (not £50,000)
  • Main rate: Over £125,000 (not £250,000)

Corporation Tax Reliefs and Allowances 2025

Annual Investment Allowance (AIA)

Current Allowance: £1,000,000 per year

  • 100% tax relief on qualifying plant and machinery
  • Excludes: Cars (separate rules apply)
  • Permanent: AIA made permanent at £1 million level
  • Applies to: All businesses, including partnerships

Source: HMRC Annual Investment Allowance guidance

Enhanced Capital Allowances 2025

Full Expensing (From April 2023):

  • 100% first-year allowance for main rate plant and machinery
  • 50% first-year allowance for special rate assets
  • Applies to: Companies only
  • Significant benefit for large capital investments

Research and Development Tax Relief 2025

New RDEC (Research and Development Expenditure Credit):

  • Available to: All companies from April 2024
  • Credit rate: 20% of qualifying R&D expenditure
  • Net benefit: Approximately 15-16% cash benefit
  • Above-the-line credit: Recognised as income

Enhanced R&D Intensive Support (ERIS):

  • Available to: Loss-making R&D intensive SMEs
  • Requirement: R&D expenditure ≥40% of total expenditure (30% from April 2024)
  • Benefit: 186% deduction with 14.5% credit rate
  • Cash benefit: Up to 27% of qualifying expenditure

Source: HMRC R&D tax relief guidance

Ring Fence Corporation Tax Rates 2025

Oil and Gas Companies

Ring Fence Corporation Tax:

  • Small profits rate: 19% (up to £50,000)
  • Main rate: 30% (over £250,000)
  • Marginal relief: Available between thresholds

Energy Profits Levy (EPL):

  • Additional rate: 38% (increased from 35% in November 2024)
  • Total effective rate: Up to 68% (30% + 38%)
  • Applies until: 31 March 2030

Practical Examples: UK Corporation Tax Rates 2025

Example 1: Small Company (£40,000 profits)

  • Tax rate: 19%
  • Corporation tax: £40,000 × 19% = £7,600
  • Effective rate: 19%

Example 2: Medium Company (£100,000 profits)

  • Basic tax: £100,000 × 25% = £25,000
  • Marginal relief: (£250,000 – £100,000) × 3/200 = £2,250
  • Final tax: £25,000 – £2,250 = £22,750
  • Effective rate: 22.75%

Example 3: Large Company (£500,000 profits)

  • Tax rate: 25%
  • Corporation tax: £500,000 × 25% = £125,000
  • Effective rate: 25%

Example 4: Company with Associated Companies

Company A with £80,000 profits and one associated company:

  • Adjusted thresholds: £25,000 and £125,000
  • Basic tax: £80,000 × 25% = £20,000
  • Marginal relief: (£125,000 – £80,000) × 3/200 = £675
  • Final tax: £20,000 – £675 = £19,325
  • Effective rate: 24.16%

Corporation Tax Payment and Filing 2025

Key Deadlines

Payment Deadline:

  • Standard: 9 months and 1 day after accounting period end
  • Large companies: Quarterly instalments if profits exceed £1.5 million

Filing Deadline:

  • CT600 return: 12 months after accounting period end
  • Must be filed online in iXBRL format

Late Payment Interest:

  • Current rate: Approximately 7.5% (Bank of England base rate + 2.5%)
  • Charged from: Day after payment due date

Large Company Quarterly Payments

Applies to companies with:

  • Annual profits over £1.5 million
  • Payments due: 14th day of months 7, 10, 13, and 16 of accounting period

Tax Planning Strategies for 2025

Optimising UK Corporation Tax Rates 2025

Small Company Strategies:

  • Timing: Manage profit recognition to stay within 19% band
  • Expenditure: Accelerate deductible expenses before year-end
  • Capital investment: Utilise AIA and enhanced allowances

Medium Company Strategies:

  • Marginal relief planning: Consider timing of income and expenses
  • Associated companies: Review group structure implications
  • Investment timing: Plan capital expenditure for maximum relief

Large Company Strategies:

  • R&D investment: Maximise RDEC or ERIS benefits
  • Group relief: Optimise loss utilisation across group
  • Quarterly payments: Manage cash flow for instalment requirements

Common Tax Efficiency Measures

Capital Allowances Optimisation:

  • Annual Investment Allowance: Plan purchases within £1 million limit
  • Enhanced allowances: Time qualifying investments strategically
  • Car purchases: Consider electric vehicle incentives

Expense Management:

  • Pre-trading expenses: Claim allowable pre-incorporation costs
  • Professional fees: Ensure proper categorisation of capital vs revenue
  • Entertaining: Understand disallowable vs allowable costs

UK Corporation Tax Rates 2025: Future Outlook

Confirmed for 2026

The UK government has confirmed that UK corporation tax rates 2025 will remain unchanged for the 2025-26 financial year:

  • Small profits rate: 19%
  • Main rate: 25%
  • Thresholds: £50,000 and £250,000

Policy Considerations

Potential Areas for Change:

  • R&D relief system: Ongoing review of effectiveness
  • Digital services tax: Integration with corporation tax
  • International tax rules: OECD Pillar Two implementation

Compliance and Record Keeping

Essential Requirements

Digital Records:

  • Making Tax Digital: Corporation tax digitisation planned (timeline TBC)
  • Current requirements: Detailed accounting records
  • Retention period: 6 years from end of accounting period

Documentation for Claims:

  • Capital allowances: Purchase invoices and installation costs
  • R&D relief: Detailed technical and financial records
  • Expenses: Comprehensive business purpose documentation

Professional Support

When to Seek Help:

  • Complex group structures: Associated company calculations
  • R&D activities: Technical qualification assessment
  • International operations: Transfer pricing and permanent establishment

Conclusion

Understanding UK corporation tax rates 2025 is crucial for effective business planning and compliance. Furthermore, the two-tier system provides opportunities for tax efficiency, particularly for companies with profits in the marginal relief band.

Key takeaways for businesses planning under UK corporation tax rates 2025 include optimising the timing of income and spending, maximising available reliefs like AIA and R&D credits, and considering the impact of connected companies on rate thresholds.

Finally, regular review of your corporation tax position and professional advice can ensure your business takes full advantage of the reliefs available while maintaining compliance with HMRC requirements.

For comprehensive tax deadline information, see our guide to UK Tax Deadlines 2025. For detailed information on upcoming changes, review our article on Self Assessment Changes 2025.

For the most current information on UK corporation tax rates 2025, always refer to HMRC’s official Corporation Tax guidance and consider professional advice for complex situations.

This article provides general guidance based on current HMRC requirements as of September 2025. Individual circumstances may vary, and professional advice should be sought for specific situations. Last updated: September 2025.

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