Corporation Tax for Small Businesses: 2026 Guide

Running a small limited company means dealing with corporation tax. It doesn't have to be complicated — but getting it wrong can mean penalties, overpayments, or missed reliefs.

This guide covers everything a small business owner needs to know about corporation tax in 2026, from the basics through to practical tips for reducing your bill.

What Is Corporation Tax?

Corporation tax is the tax your limited company pays on its profits. It applies to:

Trading profits — the money you make from your business activities, minus allowable expenses
Investment income — bank interest, rental income, gains on investments
Capital gains — profits from selling business assets

Sole traders and partnerships don't pay corporation tax — they pay income tax instead. Corporation tax is only for limited companies and certain other organisations.

Corporation Tax Rates for 2025/26

The corporation tax rates for the financial year starting 1 April 2025 are:

Profit level	Rate
Up to £50,000	19% (small profits rate)
£50,001 – £250,000	26.5% effective rate (marginal relief)
Over £250,000	25% (main rate)

What this means for small businesses

If your company's taxable profits are under £50,000, you pay the 19% small profits rate. This is unchanged from before April 2023 when the rate was 19% for everyone.

Most micro and small businesses — contractors, freelancers, small service companies, sole-director companies — fall comfortably within the small profits rate.

Associated companies warning

If you have associated companies (companies under common control), the £50,000 and £250,000 thresholds are divided between them. Two associated companies means the small profits threshold drops to £25,000 each.

Key Deadlines You Must Know

Getting deadlines wrong leads to penalties and interest charges. Here are the dates that matter:

Filing deadline

Your CT600 company tax return must be filed within 12 months of the end of your accounting period.

Example: Accounting period ends 31 March 2026 → CT600 due by 31 March 2027.

Payment deadline

Corporation tax must be paid within 9 months and 1 day of the end of your accounting period.

Example: Accounting period ends 31 March 2026 → Payment due by 1 January 2027.

Filing vs payment — they're different dates

This catches many small business owners. You must pay the tax 3 months before you need to file the return. Don't wait until filing day to pay — you'll owe interest.

First accounting period

If this is your company's first year, your first accounting period runs from the date of incorporation to your chosen year-end date. It can be up to 18 months long, but if it exceeds 12 months, you'll need to file two CT600s.

Allowable Expenses: What You Can Deduct

Allowable expenses reduce your taxable profits and therefore your tax bill. The golden rule is that expenses must be wholly and exclusively for business purposes.

Common allowable expenses for small businesses

Staff costs:

Salaries (including director's salary)
Employer's National Insurance contributions
Pension contributions
Staff training and development

Premises:

Rent and business rates
Utility bills (gas, electricity, water)
Insurance (buildings, contents, public liability)
Repairs and maintenance (not improvements)
Working from home allowance

Office and admin:

Stationery and printing
Postage and courier costs
Phone and broadband (business proportion)
Software subscriptions and cloud services
Accountancy and bookkeeping fees
Bank charges

Travel:

Business mileage at HMRC approved rates (45p/mile first 10,000 miles, 25p thereafter)
Train, bus, and air fares for business trips
Hotel and subsistence on business trips
Parking charges

Professional services:

Legal fees (related to the business, not buying capital assets)
Professional subscriptions (CIMA, ACCA, etc.)
Consultancy and advisory fees

Marketing:

Website hosting and development
Advertising and promotion
Business cards and brochures
Social media advertising

Expenses you can't deduct

Entertaining clients or suppliers — not allowable (entertaining staff is fine within limits)
Clothing — unless protective or uniform-type (ordinary business attire is not allowable)
Fines and penalties — parking fines, HMRC penalties, legal penalties
Personal expenses — anything not wholly and exclusively for business
Dividends — these are distributions of profit, not expenses

Capital Allowances

When your company buys assets like equipment, vehicles, or machinery, you can't deduct the full cost as an expense. Instead, you claim capital allowances.

Annual Investment Allowance (AIA)

The AIA gives 100% first-year relief on qualifying plant and machinery, up to £1,000,000 per year. For most small businesses, this means you can deduct the full cost of equipment purchases in the year you buy them.

Qualifying items include:

Computers and IT equipment
Office furniture
Machinery and tools
Commercial vehicles (vans, trucks)
Fixtures in business premises

Cars

Cars don't qualify for AIA. Instead:

Electric cars (zero emissions): 100% First Year Allowance — deduct the full cost
Low emissions (1-50 g/km CO₂): 18% writing down allowance per year
Higher emissions (over 50 g/km CO₂): 6% writing down allowance per year

This makes electric company cars very tax-efficient for small businesses.

How to File Your CT600

You have several options for filing your CT600:

Option 1: Use filing software (DIY)

If your company's affairs are straightforward — trading income, standard expenses, no complicated reliefs — you can file the CT600 yourself.

Software like Taxpipe handles the CT600 filing, tax calculation, and iXBRL accounts submission for a fraction of the cost of an accountant.

Option 2: Use an accountant

For companies with complex affairs — multiple income streams, R&D claims, international operations, or employee share schemes — an accountant ensures everything is done correctly. Typical cost: £800–£2,000 per year for a small company.

Option 3: HMRC's own service

HMRC's free filing service is being withdrawn. From April 2026, you'll need to use commercial software or an accountant. Plan ahead if you've been using HMRC's free service.

What you need to file

Your CT600 submission includes:

The CT600 return itself — a structured data file
Company accounts in iXBRL format
A tax computation showing how you arrived at your tax figure

All three are submitted electronically to HMRC.

How to Pay Corporation Tax

Once you've calculated what you owe, pay HMRC using one of these methods:

Direct Debit — set up in advance via your HMRC online account
Bank transfer — using your company's payment reference
Online banking — via Faster Payments or BACS
Corporate credit card — HMRC accepts this but charges a fee

Don't use: Personal cheques (slow), or cash at the Post Office (no longer accepted for CT).

Allow processing time — BACS takes 3 working days. Faster Payments is same-day. Don't leave it to the last minute.

10 Tips to Reduce Your Corporation Tax Bill

1. Claim all allowable expenses

Many small companies underclaim. Review the complete list of allowable expenses — you might be missing deductions you're entitled to.

2. Set the optimal director's salary

A director's salary of around £12,570 (the personal allowance for 2025/26) is a common strategy. The company gets a corporation tax deduction, and the director pays no income tax.

3. Make pension contributions

Employer pension contributions are fully deductible against corporation tax and free from employer's NIC. They're one of the most tax-efficient ways to extract money from a company.

4. Use the AIA on equipment purchases

If you're planning to buy equipment, do it before your year end to claim the capital allowance in the current period.

5. Consider an electric vehicle

An electric company car gives 100% first-year capital allowance, very low benefit-in-kind tax, and running costs are deductible.

6. Claim working from home allowance

If you work from home, the company can pay you a tax-free working from home allowance — £6/week without evidence, or more with receipts.

7. Check for marginal relief

If your profits are between £50,000 and £250,000, you qualify for marginal relief. This can save up to £5,250 compared to the full 25% rate.

8. Carry losses forward or back

If your company has made a trading loss, you can carry it back against the previous year's profits (getting a tax refund) or forward against future profits.

9. Time your income and expenses

Where possible, accelerate expenses into the current period and defer income to the next. This is legitimate tax planning, not avoidance.

10. Review your accounting period

Your accounting period choice affects when you pay tax. Some businesses benefit from a different year end — consult your accountant if you think this applies to you.

Common Mistakes Small Businesses Make

Missing the payment deadline — remember, payment is due 3 months before the filing deadline
Not claiming all expenses — disallowable expenses are obvious, but many businesses also miss legitimate claims
Confusing turnover with profit — you pay tax on profit (after expenses), not revenue
Ignoring the associated companies rule — having a spouse's company can change your tax rate
Not filing a CT600 for a dormant company — dormant companies still need to file
Mixing personal and business expenses — keep separate bank accounts and clear records
Forgetting to register — you must register for corporation tax within 3 months of starting business activity

Do You Need an Accountant?

Many small company owners wonder if they need an accountant. The answer depends on your situation:

You probably don't need one if:

You're a sole-director company with straightforward trading income
Your expenses are simple (office costs, travel, subscriptions)
You're comfortable using software to keep records
You don't have complicated tax reliefs to claim

You probably should get one if:

You have employees (PAYE adds complexity)
You're claiming R&D tax relief
You have international operations or income
You're involved in property development
You have multiple companies or complex group structures
You simply don't have time and would rather focus on your business

If you go the DIY route, reliable CT600 filing software is essential. It handles the calculations, generates iXBRL accounts, and files everything to HMRC — tasks that would be impractical to do manually.

What's Changing in 2026?

Key changes affecting small businesses:

HMRC free filing service ending — you'll need commercial software or an accountant from April 2026
Making Tax Digital for Corporation Tax — MTD for CT is coming (likely 2028+), meaning quarterly digital reporting. Start getting your digital records in order now.
Corporation tax rates — no changes announced for the rates themselves, but always check the Autumn Statement/Spring Budget for updates

Frequently Asked Questions

Related guides: If you're just starting out, see our corporation tax for startups guide. Freelancers and contractors should also read our corporation tax for freelancers guide. Considering whether to incorporate? See our sole trader vs limited company tax comparison.

How much corporation tax will I pay on £30,000 profit?

At the small profits rate of 19%, you'd pay £5,700 in corporation tax. Use our corporation tax calculator for a quick estimate.

When do I start paying corporation tax?

You start owing corporation tax from the day your company begins any business activity — whether that's trading, earning interest, or receiving rental income. You must register with HMRC within 3 months.

Can I reduce my tax bill by paying myself more salary?

Yes, up to a point. Director's salary is a deductible expense for the company. But you'll pay income tax and NIC on the salary personally. There's an optimal salary level that balances these taxes. Beyond that, dividends are usually more tax-efficient.

What happens if I can't pay my corporation tax?

Don't ignore it. Contact HMRC to set up a Time to Pay arrangement. They'll agree a payment plan over several months. Interest still accrues, but you avoid enforcement action.

Is my personal tax return separate from the CT600?

Yes, completely separate. Your company files a CT600 for corporation tax. You file a personal Self Assessment return for your own income (salary, dividends, etc.). They're different taxes on different legal entities — the company is a separate legal person from you.

What records do I need to keep?

You must keep records for at least 6 years from the end of the accounting period. This includes: bank statements, invoices, receipts, contracts, payroll records, and any correspondence with HMRC.