Understanding Corporate Tax Brackets: What Every Business Needs to Know

Corporation Tax can be one of the most significant costs your business faces. Yet many owners still find the UK’s corporate tax brackets confusing. Knowing how rates are applied, when they change, and how to plan around them can make a real difference to profitability and cash flow.

In this article, we'll demystify the UK's corporate tax brackets.

Before we begin, please note that while this article is written to inform, it should not be taken as professional tax advice. Always consult a qualified corporate tax accountant or chartered adviser to ensure your business decisions comply with HMRC rules.

Corporation Tax Brackets Explained

Corporation Tax is paid on the profits your company earns each financial year. 

From 1 April 2023, the small profits rate remains at 19 % for companies with profits up to £50,000. Businesses earning up to £249,999 pay the main rate of 25%. Businesses earning £250,000 or more also pay the main rate of 25 %, however marginal relief is not applied.

Marginal relief gradually increases your effective tax rate between 19 % and 25 %. This system prevents a sudden jump in tax when profits grow.

If your company has associated companies (for example, subsidiaries or businesses under common control), the profit thresholds are divided equally between them, meaning each company may hit the higher rate sooner. 

Differentiation Between Various Business Tax Brackets

Understanding which bracket your company falls into matters for accurate budgeting and tax forecasting.

• Small profits rate (19 %) applies to businesses below £50,000 in annual profits.

• Marginal relief applies to profits between £50,000 and £250,000.

• Main rate (25 %) applies once profits reach £250,000 or more.

Because marginal relief tapers gradually, a company with £100,000 in profit pays an effective rate somewhere between 19 % and 25 %, depending on exact figures. For larger or group-structured businesses, calculating this correctly requires professional support.

Corporate Tax Planning Strategies

Good corporate tax planning helps keep your company efficient, compliant and resilient. 

A few examples include:

Timing expenditure: 

Bringing forward allowable costs or investment can lower taxable profits in a given year.

Using reliefs and allowances: 

Research and development (R&D) credits, patent box relief and capital allowances all reduce tax liability.

Managing profit distribution: 

Deciding when and how to take salary and limited company dividends affects both corporate and personal tax exposure.

Monitoring associated company status: 

Reviewing ownership structures ensures thresholds are not unintentionally breached.

Proactive planning helps you make informed choices rather than reacting after the year-end figures are fixed.

When To Consult a Corporate Tax Accountant

While there's never a bad time to get expert tax advice, professional support becomes more valuable as your business grows. 

Seek help from a corporate tax accountant if your profits approach a new bracket, if you trade through multiple companies, or if you want to explore relief schemes. 

A specialist adviser can model different scenarios and recommend strategies tailored to your goals.

Make Informed Decisions with Expert Guidance

Understanding the UK’s corporate tax brackets is essential for every business owner, but staying compliant while optimising your position can be complex. Rather than guess your way through changing tax rules, Link Up can help connect your business with experts who know how to maximise efficiency effectively and compliantly.

Claim your free financial health check today and take control of your Corporation Tax planning.

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