UK corporation tax should be treated as a planning variable rather than a year-end surprise. For financial year 2026–27, the main Corporation Tax rate is 25% for profits above £250,000, the small profits rate is 19% for profits of £50,000 or less, and Marginal Relief can apply between those thresholds.
UK Corporation Tax Rates and Thresholds
The headline thresholds are not always the thresholds that apply to a particular company. HMRC reduces them proportionately for short accounting periods and where a company has associated companies. Finance teams should therefore check the company’s actual circumstances rather than relying on a single headline number.
For firms between the lower and upper limits, Marginal Relief means the effective tax rate rises gradually rather than jumping immediately from 19% to 25%.
How Tax Affects Business Planning
Tax should not drive commercial strategy by itself, but it can change the timing and net cost of investment. Capital allowances, qualifying expenditure and other reliefs may affect the after-tax economics of new equipment, technology or expansion.
- forecast taxable profit as well as accounting profit;
- check whether associated companies alter the thresholds;
- model cash needed for tax payments;
- review the tax treatment of major capital expenditure before committing;
- separate genuine commercial investment decisions from spending undertaken only to reduce tax.
Planning for Growth
A company approaching a higher effective tax rate should not automatically try to suppress profit. The better question is whether available cash can be deployed into investments that generate durable returns. Tax planning should support the operating plan, not replace it.
Borrowing conditions can also change the economics of investment. Our guide to Bank of England base rate and business borrowing explains how financing costs interact with capital decisions.
External source: HMRC — Corporation Tax rates.
