Summary
Corporation tax now operates on a two-rate system: 19% for profits up to £50,000 and 25% for profits over £250,000, with marginal relief in between. Capital gains tax rates for higher-rate taxpayers have risen. Proactive planning is now more valuable than ever.
Corporation Tax: Current Rates
The UK corporation tax regime moved from a flat 19% rate to a graduated system from April 2023. This affects every UK limited company:
| Taxable Profits | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 – £250,000 | 19% – 25% | Marginal relief applies |
| Over £250,000 | 25% | Main rate |
Important: If your company is associated with other companies (e.g. you own or control multiple businesses), the thresholds are divided between them. Two associated companies each get a £25,000 small profits limit, not £50,000.
Corporation tax is due nine months and one day after your accounting period end. Missing this deadline triggers automatic penalties starting at £100, rising steeply with time.
Marginal Relief Explained
If your profits fall between £50,000 and £250,000, marginal relief applies. This means you pay 19% on the small profits element and a tapered rate on the remainder — your effective rate sits somewhere between 19% and 25% depending on exactly where your profits land.
The relief is calculated using the formula:
For companies in this band, every pound of profit above £50,000 carries an effective marginal rate of 26.5% — higher than the headline 25%. This makes tax planning in this range particularly important, as pension contributions, capital allowances, and R&D relief can all shift profits into a lower band.
Capital Gains Tax: What's Changed
Capital Gains Tax (CGT) applies to individuals and trusts selling assets at a profit — including shares, investment properties, and business assets. Company profits on asset disposals are subject to corporation tax, not CGT.
Key changes for individuals following the October 2024 Budget:
Main CGT rates increased
The basic rate for most assets rose from 10% to 18%. The higher rate rose from 20% to 24%. These rates apply to shares, investment assets, and most other disposals.
Residential property rates aligned
Residential property gains are now taxed at 18% (basic rate) and 24% (higher rate) — aligning property with other asset classes.
Annual exempt amount reduced
The CGT annual exempt amount was cut from £12,300 to £3,000 from April 2024. More gains are now taxable for individuals who previously relied on this exemption.
Business Asset Disposal Relief (BADR) unchanged — for now
BADR (formerly Entrepreneurs' Relief) still applies at 10% on qualifying business disposals up to a lifetime limit of £1 million for the 2025/26 tax year, rising to 14% in 2026/27 and 18% thereafter.
Tax Planning Strategies for Directors
With corporation tax at 25% for larger companies and CGT rates rising, the gap between doing nothing and proactive planning has widened considerably. The most effective strategies we use with clients:
Pension contributions
Employer pension contributions are a deductible business expense — they reduce corporation tax profits directly. For a director in the 25% band, a £10,000 employer pension contribution saves £2,500 in corporation tax while building retirement wealth.
Capital allowances and full expensing
The "full expensing" relief introduced in April 2023 allows companies to deduct 100% of qualifying plant and machinery expenditure in the year of purchase. If you are planning capital investments, timing these to maximise relief can materially reduce your tax bill.
R&D tax credits
If your business undertakes qualifying research and development activity, you may be entitled to significant tax credits — even if the activity seems routine. We assess eligibility for all clients in eligible sectors.
Salary and dividend optimisation
The optimal mix of salary and dividends for owner-directors changes each year based on NIC thresholds, income tax bands, and corporation tax rates. We model this annually for each client.
Timing of asset disposals
For personal CGT, the timing of asset sales across tax years can significantly reduce liability. Using the £3,000 annual exempt amount, transferring assets between spouses, and using pension wrappers to hold investments are all worth considering.
What We Do for You
We handle the full corporation tax cycle for our clients: calculating your tax liability, identifying all available reliefs, preparing the CT600 return, and filing with HMRC before the deadline. But the most valuable part of our service is what we do before year-end.
By reviewing your financial position quarterly rather than annually, we can take action while there is still time — adjusting pension contributions, timing expenditure, and advising on dividends before the accounting period closes.
If you are currently overpaying or unsure whether your current accountant is being proactive enough, book a free consultation and we will review your situation.