The Formula: How HMRC Calculates Corporation Tax

Under the dual-rate UK Corporation Tax system, your liability depends on your profit level relative to the lower (£50,000) and upper (£250,000) thresholds:

If Profit ≤ £50,000: Tax = Profit × 19%
If Profit ≥ £250,000: Tax = Profit × 25%
If £50,000 < Profit < £250,000:
  Marginal Relief = (3 ÷ 200) × (£250,000 - Profit)
  Tax Payable = (Profit × 25%) - Marginal Relief
WORKED EXAMPLE

For a UK limited company with £85,000 of taxable profit and no associated companies:

• Full 25% Main Rate Tax = £85,000 × 0.25 = £21,250.00

• Marginal Relief = 0.015 × (£250,000 - £85,000) = 0.015 × £165,000 = £2,475.00

• Net Corporation Tax Payable = £21,250 - £2,475 = £18,775.00

• Effective Corporation Tax Rate = (£18,775 ÷ £85,000) = 22.09%

Frequently Asked Questions

How do associated companies affect Corporation Tax thresholds?

If you or your business partners control more than one limited company, the £50,000 lower limit and £250,000 upper limit are divided equally among all associated companies. For example, if you have 2 associated companies (3 in total), the small profits limit drops from £50,000 to £16,666.67, and the main rate applies above £83,333.33.

When is UK Corporation Tax due for payment?

For companies with taxable profits up to £1.5 million, Corporation Tax must be paid electronically to HMRC 9 months and 1 day after the end of your accounting period. Your Company Tax Return (CT600) is due 12 months after your period end.

Why is the marginal tax rate 26.5% between £50,000 and £250,000?

While the overall effective tax rate is between 19% and 25%, every additional £1 earned above £50,000 incurs 25p in base tax PLUS reduces your marginal relief by 1.5p ($3/200$). This produces an effective marginal rate of 26.5% on profits in this band.