sarah

Here's how UK corporation tax rates work for periods starting on or after 1 April 2023:

The Three Tax Bands

Profits up to £50,000 are taxed at 19% (the small profits rate).

Profits over £250,000 are taxed at 25% (the main rate).

Profits between £50,000 and £250,000 fall into the marginal relief band, where the effective rate gradually increases from 19% towards 25%.

How Marginal Relief Works

For profits in the middle band, you don't simply pay 19% or 25%. Instead, marginal relief tapers the rate gradually. The formula calculates tax at 25% on the full profit, then subtracts a relief amount based on how far below £250,000 your profits are.

This creates an effective marginal rate of 26.5% on the portion of profits between £50,000 and £250,000. That sounds counterintuitive, but it's how the rate smoothly transitions from 19% to 25%.

Example

A company with £100,000 profit would pay an effective rate of around 22.75%, not 19%.

Why You Might Not See 19%

If your company's profits are above £50,000, the rate will be higher than 19%. The flat 19% rate for all companies ended in April 2023. Now, only companies with profits under £50,000 pay exactly 19%.