Corporation tax looks simple from the outside — 25% above £250,000, 19% below £50,000 — and the complexity all sits in the space between: associated companies dividing the thresholds, instalment payments starting earlier than most finance teams expect, and capital allowances that changed materially on 1 April 2026 when the main pool rate fell from 18% to 14%.
Rates and the marginal band
For the financial years beginning 1 April 2025 and 1 April 2026 the rates are unchanged: a main rate of 25% on profits over £250,000, a small profits rate of 19% on profits under £50,000, and marginal relief between the two with a standard fraction of 3/200. Budget 2025 confirmed both rates again for the year beginning 1 April 2027, which is useful for three-year modelling.
The effective rate inside the marginal band is roughly 26.5%, which is the part that catches people: profits between £50,000 and £250,000 are taxed at the margin more heavily than profits above £250,000. It changes the arithmetic on timing income, bonuses and pension contributions in ways that are worth modelling rather than assuming.
Marginal relief is not available to non-UK resident companies, close investment holding companies, or companies with profits over £250,000.
Associated companies
The £50,000 and £250,000 limits are proportionately reduced by the number of associated companies. The divisor is associated companies plus one — three other associated companies means dividing by four.
This is the single most common source of unexpected corporation tax bills in owner-managed groups. A dormant sister company, a property holding company, or a business a shareholder owns separately can drag a profitable trading company from 19% into marginal relief, or from marginal relief into the main rate. The test looks at control rather than at whether anyone thinks of the companies as related, and the answer often surprises the people who set the structure up.
Instalment payments
A company is large where profits are at an annual rate of more than £1.5 million but less than £20 million, and pays in four instalments — 6 months and 13 days after the period starts, then quarterly. For a 12-month period ending 31 December, that is 14 July, 14 October, 14 January and 14 April.
Above £20 million a company is very large and pays on an accelerated schedule that finishes before the period does.
The thresholds divide by the number of associated companies plus the company itself, so five associates turns £1.5 million into £250,000. Each instalment is based on an estimate of the liability for the period being paid, not on last year's result — and interest on underpaid instalments runs from each instalment date, which is why a company that underestimates its first payment pays interest on a liability it had not yet earned.
Capital allowances after April 2026
The main pool writing down allowance fell from 18% to 14%, effective 1 April 2026 for corporation tax and 6 April 2026 for income tax. Accounting periods straddling the date use a hybrid rate apportioned by days. The special rate pool is unchanged at 6%.
Against that reduction sits a new relief. A 40% first-year allowance is available for main rate expenditure incurred on or after 1 January 2026, aimed at cases where full expensing and the annual investment allowance are not available or not preferred — including unincorporated businesses and assets bought for leasing. It is not available for second-hand assets or cars, and is excluded for overseas leasing.
The two headline reliefs are unchanged. Full expensing gives companies a 100% first-year allowance on new and unused main rate plant and machinery, and 50% on special rate expenditure, uncapped and now permanent — the 1 April 2026 sunset was removed. Note the sting: disposing of a full-expensed asset triggers an immediate balancing charge equal to 100% of the disposal value. The annual investment allowance remains £1 million and is available to sole traders and partnerships as well as companies.
For most businesses the order of preference is unchanged — AIA or full expensing first, then the 40% FYA where they do not reach, then the pools. What has changed is the cost of ending up in the main pool, which is now a 14% reducing balance rather than 18%.
The reliefs worth checking
- R&D. The merged scheme applies to accounting periods beginning on or after 1 April 2024, giving a 20% expenditure credit. Loss-making SMEs spending at least 30% of total expenditure on R&D qualify for enhanced R&D intensive support: an extra 86% deduction and a 14.5% payable credit. Our guide to R&D tax relief covers the compliance regime, which is where claims now fail;
- Patent Box. An effective 10% rate on qualifying IP profits, with an election required within two years of the end of the accounting period in which the profits arose. Qualifying patents include UK IPO, EPO and specified EEA grants;
- Corporate interest restriction. A £2 million de minimis of net tax-interest expense, pro-rated for short or long periods. Where computed capacity falls below it, the de minimis is the capacity — but it cannot be carried forward;
- Capital allowances on property — structures and buildings allowance at 3% straight line, and integral features in the 6% special rate pool. Fixtures on a purchase need a section 198 election to pass allowances across.
Where advice earns its fee
Rarely in the computation. It earns it in the decisions taken before the year end: whether a group's associated company position can be simplified, whether capital expenditure falls either side of a rate change, whether an R&D claim is supportable rather than merely arguable, and whether the instalment forecast is realistic enough to avoid interest.
The compliance failures that cost the most are also predictable — a missed Patent Box election deadline, an unnoticed associated company, an instalment regime entered without anyone realising. Each is cheap to prevent and impossible to fix afterwards. Our guide to corporation tax compliance covers the filing cycle and the penalties attached to it.
Acumon advises companies and groups through corporation tax, business tax and tax planning work, with capital allowances, R&D tax credits and Patent Box claims alongside. If your company has profits near £50,000 and a sister company nobody has mentioned, that is the first thing to check.