UK Corporation Tax Rates Guide (2026/27)

UK Corporation Tax has had a two-rate structure since 1 April 2023, with a 19% small profits rate on the first £50,000 of taxable profit, a 25% main rate above £250,000, and marginal relief tapering the rate smoothly between the two thresholds. This guide is the canonical 2026/27 reference - the full rate schedule, the marginal relief formula with worked examples at four profit points, how associated companies dilute the thresholds, Patent Box and R&D relief, quarterly instalments, filing and payment dates, loss relief and group relief, capital allowances under Full Expensing and the £1m Annual Investment Allowance, and the headline anti-avoidance rules, including the charge on unassessed transfer pricing profits that replaced the Diverted Profits Tax.

Corporation Tax is a YMYL topic. This guide describes the rules in general terms and is not a substitute for advice on your own facts. Companies in the marginal band, in group structures, with R&D activity, with Patent Box-eligible IP, or with overseas elements should engage a Chartered Tax Adviser or accountant familiar with the Company Taxation Manual before making material decisions - the margin between the small profits rate, the marginal band and the full main rate is wide enough that planning around it materially changes the company's effective tax rate.

1. Overview: the two-rate structure

UK Corporation Tax is charged on the worldwide taxable profits of UK resident companies and on the UK-source profits of non-resident companies trading through a UK permanent establishment. The charge applies to trading profits, non-trading loan relationship credits, non-trading intangible fixed asset profits, property income, capital gains, and certain other categories aggregated as "total profits" in the CT600 computation. The headline rate structure for the financial year 2026 (the year beginning 1 April 2026) is the same as for FY 2023, FY 2024 and FY 2025 - the rates have not moved since the Spring Budget 2021 reform took effect on 1 April 2023.

Profits at or below £50,000 pay 19%. Profits above £250,000 pay 25%. Profits between the two thresholds pay the main rate reduced by marginal relief, which produces a smooth ramp from 19% at the lower limit to 25% at the upper limit. The slice rate - the effective rate on each pound of profit added inside the marginal band - is exactly 26.5%, which is higher than the main rate by design. The reform deliberately makes the marginal band the most expensive zone of the Corporation Tax curve, so that a company that just spills over the small profits rate threshold pays a high tax on the spilled portion until it reaches the upper limit and reverts to the main rate.

Two structural points reshape the curve for any particular company. First, the thresholds are divided equally between associated companies. A company that is one of three associates therefore has thresholds of £16,666.667 and £83,333.333 rather than the headline £50k / £250k. Second, short accounting periods pro-rate the thresholds by reference to the number of days. Both adjustments are made before the marginal relief calculation. Section 4 below covers the associated-company rules in detail and section 3 covers the formula.

2. Current rate schedule: 19%, marginal, 25%

The Corporation Tax rate structure in force from 1 April 2023 onward, and unchanged for FY 2026, is set out in Part 3 CTA 2010 as amended by Finance Act 2021 schedule 1. The three rates are:

• Small profits rate: 19% on taxable profits at or below £50,000.
• Marginal band: profits between £50,000 and £250,000 are taxed at the main rate less marginal relief, producing an effective slice rate of 26.5% on each pound earned in the band.
• Main rate: 25% on taxable profits above £250,000.

Ring-fenced North Sea oil and gas profits are taxed separately under the ring fence regime and are outside the scope of this guide. The bank surcharge of 3% applies on top of the main rate to bank profits above £100 million from 1 April 2023 (it was previously 8% above £25 million; both rate and threshold changed at the same time as the main reform). Close investment-holding companies (CICs) are excluded from the small profits rate and the marginal band and pay the full 25% on every pound of taxable profit regardless of size.

The pre-reform rate history. The single Corporation Tax rate of 19% applied from 1 April 2017 to 31 March 2023, having descended from 30% in the mid-2000s through a sequence of incremental cuts (28%, 26%, 24%, 23%, 21%, 20%, 19%). The Spring Budget 2021 reform reversed direction by restoring a higher main rate of 25% from FY 2023, but retained a small profits rate of 19% and reintroduced the marginal band - mechanically the same architecture that existed before April 2015, when the last small profits rate was abolished as part of the move to a single 20% rate.

Why the marginal band exists. Without marginal relief, a company earning £50,001 of profit would pay 25% on the lot - a £12,500 tax bill on barely a pound more of profit than the £9,500 paid at exactly £50,000. The cliff edge would create perverse incentives to delay invoicing or accelerate deductions to keep profits under the lower limit. Marginal relief produces a smooth gradient instead, raising the effective rate continuously from 19% at the lower limit to 25% at the upper limit and ensuring that an extra pound of profit always leaves the company with some of it after tax. The 26.5% slice rate is the necessary price of removing the cliff edge.

Diverted Profits Tax and other separate charges. Diverted Profits Tax is abolished for accounting periods beginning on or after 1 January 2026 and replaced by a Corporation Tax charge on unassessed transfer pricing profits at the underlying rate plus 6 percentage points (Finance Act 2026 section 46 and Schedule 5). The Energy Profits Levy on oil and gas extraction profits is 38% from 1 November 2024 and runs to 31 March 2030, on top of ring fence Corporation Tax at 30% and the 10% supplementary charge (HMRC policy paper, Energy Profits Levy reforms 2024).

3. Marginal relief mechanics and the 3/200 fraction

The marginal relief calculation is set out in section 18B CTA 2010 (inserted by Finance Act 2021). The full statutory formula runs:

MR = F * (U - A) * (N / A)

where MR is the marginal relief amount deducted from main-rate Corporation Tax, F is the marginal relief standard fraction (currently 3/200 or 0.015), U is the upper limit (£250,000 headline, divided by associated company count and pro-rated for short periods), A is augmented profits (taxable total profits plus franked investment income, essentially UK dividends received from non-group companies), and N is the taxable total profits actually chargeable.

For the standard small company with no franked investment income, A equals N and the N/A ratio is 1. The formula then simplifies to the version most practitioners use day-to-day:

CT = (Profit * 25%) - ((£250,000 - Profit) * 0.015)

This is the single-line calculation that drives every example below. The marginal relief amount is the product of the width of the unused portion of the marginal band (Upper minus Profit) and the standard fraction. As profit rises towards £250,000, the relief shrinks linearly until it reaches zero at exactly the upper limit. Below £50,000 the small profits rate applies instead and the marginal relief formula is not used.

Why the fraction is 3/200. The legislation backs into the fraction from the desired curve. At the lower limit (profit £50,000) the formula must produce the same tax as the small profits rate: £9,500. At the upper limit (profit £250,000) the formula must produce the same tax as the main rate: £62,500. At the lower limit, main-rate tax is £12,500 and must be reduced to £9,500, a reduction of £3,000. Spread over the £200,000 between the lower and upper limits, that is £3,000 / £200,000 = 0.015, or 3/200. The fraction is the mathematical consequence of choosing the rates and thresholds; it is not a separate policy lever.

Why the slice rate is 26.5%. Differentiating the marginal relief formula with respect to profit shows that each extra pound of profit in the band increases CT by (25% + 0.015) = 26.5% rather than the main 25%. The relief shrinks by 1.5p for each extra pound, so the relief loss adds to the main-rate charge rather than cancelling against it. The 1.5p withdrawal rate is the "claw-back" tax embedded in the marginal band - the same structural feature that creates the 60% effective band in personal Income Tax between £100,000 and the point where the Personal Allowance is fully withdrawn, where losing £1 of allowance for every £2 of income adds 20p to the 40% higher rate.

Franked investment income (FII). Where a company receives dividends from non-group UK companies, those dividends are not themselves chargeable to Corporation Tax (the dividend exemption regime catches most categories), but they do count as franked investment income for the purposes of fixing A in the marginal relief formula. A higher A reduces the N/A ratio below 1, which reduces the relief and pushes the effective rate upwards. FII therefore narrows or eliminates marginal relief for companies whose investment income is large relative to their trading profit. Group dividends and certain other categories are excluded from FII.

Short accounting periods. The lower and upper limits are pro-rated by reference to the number of days in the period. A 183-day accounting period has thresholds of £25,068 and £125,342 respectively (after rounding). This stops a company from creating multiple short periods to multiply the benefit of the lower threshold. A company changing its accounting reference date should model the threshold impact before filing the abbreviated period.

4. Associated companies and threshold dilution

The £50,000 lower limit and £250,000 upper limit are divided by the number of companies associated with the company being assessed in the accounting period, plus one (section 18D CTA 2010). Two companies are associated if one controls the other, or if both are under the control of the same person or persons, at any point in the period. "Control" follows the section 450 CTA 2010 definition - more than 50% of share capital, voting power, distributable income, or assets on winding-up. The test is at any point in the period (section 18E(1)), so a company associated for part of the period counts for the whole period, unless it carried on no trade or business during that part (section 18E(3)).

The arithmetic. Where N companies are associated with each other (counting the company itself), each has thresholds of £50,000 divided by N and £250,000 divided by N. A group of three associated companies therefore has thresholds of £16,666.667 and £83,333.333, applied separately to each company's own taxable profit. A company in a group of ten faces thresholds of £5,000 and £25,000. Once N is high enough, the small profits rate effectively disappears for the group because few individual companies have small enough profits to qualify.

The 51% group / consortium overlap. The associated-companies test for Corporation Tax rate thresholds is distinct from the 75% group test for group relief and the 51% group test used in other regimes. A company can be a 51% subsidiary without being a 75% subsidiary - for example, where the parent holds 60% - and the associated-companies test turns on control, broadly more than 50%. A consortium-owned company is associated with a member only if that member (alone or with others under common control) controls it.

Excluded companies. An associated company that carried on no trade or business in the period is ignored (section 18E(3) CTA 2010, inserted by Finance Act 2021 schedule 1). A passive holding company - one that holds only shares in its 51% subsidiaries, receives only dividends from them and pays them on - is treated as not carrying on a business (section 18F). Fixed-rate preference shares held by a non-close finance company, and rights held only as a trustee where there is no other connection, are ignored in deciding control (sections 18H and 18J). These carve-outs reduce the practical impact of the test for groups with intermediate holding entities.

Common pitfalls. The most expensive mistakes in practice involve forgetting non-trading associates owned by the same individual. A director who owns a trading company and personally owns a separate property investment company will typically have both associated because they are both under the control of the same person. The trading company's thresholds halve from £50k / £250k to £25k / £125k even though the property company has no Corporation Tax computation in issue. Similarly, family-owned companies controlled jointly by parents and children, or by trustees and beneficiaries, can be associated depending on the precise share-class structure. Control follows sections 450 and 451 CTA 2010, which can attribute rights held by a person's associates, such as relatives and business partners, so check family holdings before assuming two companies are unconnected.

Practical impact on owner-managed companies. The most common owner-managed structure is one trading company per individual. Where the same individual controls two or more such companies, the associated-rules bite hard. A director who operated through two trading companies generating £50k each would, pre-reform, have paid £19,000 of Corporation Tax (£9,500 each at the old 19% small profits rate or the post-reform small profits rate). Under the associated-companies rules in FY 2026 each company has a lower limit of £25k and an upper limit of £125k. The £50k profit now falls in the marginal band for each company, attracting CT of (£50k * 25%) - ((£125k - £50k) * 0.015) = £12,500 - £1,125 = £11,375 per company, a total of £22,750 for the group. The penalty for running two associated companies in this configuration is £3,750 a year compared with each company having its own £50k limit. That is exactly what a single company with £100k of profit would pay (£25,000 less £2,250 marginal relief = £22,750): the rules remove the benefit of splitting profits between companies rather than adding a further charge.

5. Worked examples

The four scenarios below use the FY 2026 rates and thresholds for a standalone, non-associated company with no franked investment income, in a 12-month accounting period. The formula is CT = (Profit * 25%) - ((£250,000 - Profit) * 0.015), applicable only in the marginal band; the small profits rate or main rate applies outside the band.

5.1 £40,000 profit - entire amount at 19%

A small consultancy company with taxable profit of £40,000 for the 12 months to 31 March 2027. No associated companies, no franked investment income, no Patent Box or R&D claims.

• Profit: £40,000
• Below lower limit of £50,000 - small profits rate of 19% applies
• Corporation Tax: £40,000 times 19% = £7,600
• Effective rate: 19.00%

The £40,000 profit sits comfortably under the lower limit so the small profits rate does the whole job. Cash CT is due 1 January 2028 (9 months and 1 day after 31 March 2027) and the CT600 is due 31 March 2028. No quarterly instalments apply because the company is far below the £1.5m large-company threshold. The director then has to plan the extraction route - dividends, salary or a combination - on what is left after Corporation Tax.

5.2 £80,000 profit - marginal relief band

A trading company with taxable profit of £80,000 for the 12 months to 31 March 2027. No associated companies. The profit sits inside the marginal band (£50k to £250k).

• Profit: £80,000
• Main-rate tax: £80,000 times 25% = £20,000
• Marginal relief: (£250,000 - £80,000) times 0.015 = £170,000 times 0.015 = £2,550
• Corporation Tax: £20,000 - £2,550 = £17,450
• Effective rate: 21.81%

The company is taxed at an average effective rate of around 21.81% on the £80,000 profit. The marginal slice rate, however, is the higher 26.5% - so if the company's profit rose to £81,000 the extra £1,000 would attract an extra £265 of Corporation Tax (rather than the £250 a naive 25% calculation would predict). The high marginal slice rate is the reason that pension contributions and other deductible expenses are particularly valuable for companies in this band - a £1 pension contribution saves a full 26.5p of Corporation Tax compared with 25p for a company above the upper limit and 19p below the lower limit.

5.3 £200,000 profit - upper marginal band

A profitable trading company with taxable profit of £200,000 for the 12 months to 31 March 2027. No associated companies. The profit sits near the top of the marginal band, close to the upper limit.

• Profit: £200,000
• Main-rate tax: £200,000 times 25% = £50,000
• Marginal relief: (£250,000 - £200,000) times 0.015 = £50,000 times 0.015 = £750
• Corporation Tax: £50,000 - £750 = £49,250
• Effective rate: 24.63%

As profit approaches the £250,000 upper limit, marginal relief shrinks to almost nothing and the effective rate approaches the main rate. At £200,000 the marginal relief is only £750, knocking the effective rate down from a flat 25% to 24.63%. A company in this position is essentially paying the main rate on most of its profit. Quarterly instalments still do not apply because profit is below the £1.5m large-company threshold, but the company should monitor that threshold ahead of any growth that might push it across.

5.4 £300,000 profit - full main rate

A profitable trading company with taxable profit of £300,000 for the 12 months to 31 March 2027. No associated companies. Profit is above the upper limit so the main rate applies in full and no marginal relief is available.

• Profit: £300,000
• Above upper limit of £250,000 - main rate of 25% applies in full
• Corporation Tax: £300,000 times 25% = £75,000
• Effective rate: 25.00%

No marginal relief is available because the company is above the upper limit. Each extra pound of profit attracts an extra 25p of Corporation Tax, which is lower than the 26.5% slice rate inside the marginal band. The company is still below the £1.5m quarterly-instalments threshold so payment remains due 9 months and 1 day after the end of the accounting period. Companies clustered around this profit level should consider whether Patent Box election (section 6), R&D claims (section 7) and pension contributions can bring the effective rate back below the headline 25%.

6. Patent Box and the 10% effective IP rate

Patent Box is an elective UK regime introduced by Finance Act 2012 that taxes qualifying profits from patented inventions at an effective rate of 10%. The relief is delivered by an additional trading deduction in the Corporation Tax computation, calibrated so that after applying the main 25% rate the net effective tax on qualifying profits is 10%. The election must be made within two years after the end of the accounting period in which the profits arose, either in the computations with the Company Tax Return or separately in writing (GOV.UK, Patent Box guidance).

Qualifying IP. The relief covers profits from patents granted by the UK Intellectual Property Office, the European Patent Office, or the patent offices of certain specified EEA states (Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia and Sweden). Supplementary Protection Certificates, plant breeders' rights, plant variety rights and certain regulatory data protection rights are also qualifying IP. Trade marks, copyrights and registered designs do not qualify and remain taxed at the main rate.

Qualifying development. The company claiming Patent Box must have created the patented invention or undertaken qualifying development on it. Qualifying development means significant contribution to the creation of the patented item or to the development of a product that incorporates the patented item. A holding company that merely licenses in an already-developed patent cannot itself claim Patent Box unless it satisfies a separate active ownership condition by managing the patent portfolio actively.

The modified nexus regime. For elections and new patents after 30 June 2016, and for all Patent Box profits from 1 July 2021, the relief follows the OECD "modified nexus" approach. An R&D fraction compares the company's own and unconnected-subcontracted R&D spending, uplifted by 30%, with its total including connected-party subcontracting and acquisition costs (capped at 1). Where much of the R&D was bought in or done by connected parties, the relief falls proportionately. The objective is to ensure that countries giving IP-related tax relief do so only to the extent the underlying R&D activity took place inside their jurisdiction or under the claimant's direct economic substance.

Computing the relevant IP profits. The Patent Box calculation is multi-step. Start with the company's total trading profit. Strip out finance profits and routine return (a deemed 10% of certain allocable expenses, reflecting normal trading margin that does not relate to the patent). Apply a marketing assets return adjustment if the brand contributes materially to profits. The result is the qualifying residual profit, to which the IP-attribution ratio applies. Multiply by the nexus fraction (qualifying R&D expenditure divided by total R&D expenditure plus acquisition costs, with a 30% uplift). The output is the relevant IP profit eligible for the Patent Box deduction.

Worked Patent Box example. A medical device company has £1 million of trading profit. After stripping out finance income (£20k), routine return (£100k) and marketing assets return (£80k), the qualifying residual profit is £800k. The IP-attribution ratio puts £600k as patent-derived. The nexus fraction is 0.9 (most R&D in-house). Relevant IP profit: £600k * 0.9 = £540k. The Patent Box additional deduction is £540k * (25% - 10%) / 25% = £324k. Corporation Tax saving: £324k * 25% = £81k - the equivalent of taxing £540k at 10% instead of 25%.

Practical eligibility. Patent Box is most valuable for companies with substantial IP-derived profit streams - pharmaceuticals, medical devices, engineering, semiconductors, specialised manufacturing, and certain software businesses where a patented hardware element drives the product. Software as such is harder to patent in the UK and at the EPO, which limits the regime for pure software businesses. The election should be considered jointly with R&D relief (section 7) - the two regimes interact via the nexus fraction.

7. R&D relief: SME enhancement and RDEC

UK R&D tax relief was significantly reformed by Finance Act 2024. For accounting periods beginning on or after 1 April 2024 the previous separate SME relief and RDEC regimes were merged into a single Research and Development Expenditure Credit at a headline rate of 20%. A separate enhanced regime for R&D-intensive loss-making SMEs continues to operate alongside the merged regime. The pre-merger regimes still apply to accounting periods beginning before 1 April 2024 - so historical claims through the pre-merger SME or RDEC schemes follow the old rules.

The merged scheme (RDEC) from 1 April 2024. The credit is 20% of qualifying R&D expenditure, treated as taxable income above the line and then offset against the Corporation Tax liability. For a company at the 25% main rate, the net benefit after tax on the credit itself is approximately 15% of qualifying expenditure. The credit is payable in cash where it exceeds the company's tax liability, subject to a PAYE / NIC cap (broadly £20,000 plus 300% of relevant PAYE and NIC liabilities).

The R&D-intensive SME regime. A separate enhanced regime applies to SMEs (under the EU micro and SME definition) that are loss-making and R&D-intensive. R&D-intensive means qualifying R&D expenditure is at least 30% of total expenditure for accounting periods beginning on or after 1 April 2024 (40% for periods straddling that date or beginning on or after 1 April 2023). Qualifying companies get an additional 86% deduction on top of the base 100% (so 186% total deduction) and can surrender losses for a payable credit at 14.5% of the surrendered loss. The combination is worth up to £27 per £100 of qualifying R&D expenditure for the most intensive loss-making SMEs (186% times 14.5%).

What counts as R&D. The statutory definition cross-references the BIS / DSIT Guidelines on the Meaning of Research and Development for Tax Purposes. R&D for tax purposes is a project that seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty - uncertainty that competent professionals working in the field could not readily resolve from published knowledge. The work must be systematic and directed at scientific or technological advance, not merely commercial novelty. Routine improvement, market research, and adaptation of existing technology to a new customer environment do not qualify.

Qualifying costs. The main categories are staff costs (gross pay, employer NIC, employer pension), subcontracted R&D (subject to restrictions on connected-party subcontractors and on overseas subcontracting from 1 April 2024), externally provided workers (agency staff), consumables (utilities, materials transformed in the R&D process), software licences directly used in R&D, and certain cloud computing costs and data licences (from 1 April 2023). Capital expenditure on R&D is dealt with separately through R&D Capital Allowances (RDA) at 100% rather than through the main R&D credit.

Restrictions on overseas R&D. Since 1 April 2024, R&D claims have been restricted in respect of subcontracted activities performed outside the UK and overseas externally-provided workers, with narrow carve-outs where the work could not reasonably have been undertaken in the UK because of geography, environment, population or regulatory factors (eg deep sea trials, polar research, certain clinical trials). The change is intended to localise the R&D tax incentive to UK-based activity, mirroring the OECD modified nexus pressure on Patent Box.

Compliance. R&D claims now require pre-notification within six months of the accounting period end for first-time claimants, an additional information form filed before or with the CT600, and named senior officer sign-off. HMRC challenges claims that do not identify the scientific or technological uncertainty and how it was resolved. Companies should maintain contemporaneous documentation of the R&D project rather than reverse-engineering a claim at year-end.

8. Quarterly instalments for £1.5m+ companies

Companies whose profits for an accounting period are at an annual rate above £1.5m are "large" and normally pay Corporation Tax in quarterly instalments under the Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998/3175). For accounting periods beginning on or after 1 April 2023 the £1.5m threshold is divided by the number of associated companies plus one.

Instalment dates. For a 12-month accounting period, instalments are due on the 14th day of months 7, 10, 13 and 16 measured from the start of the period. For a period to 31 December 2026, the instalments fall on 14 July 2026, 14 October 2026, 14 January 2027 and 14 April 2027. Each instalment is one-quarter of the estimated total Corporation Tax liability for the period. Underpayments accrue late-payment interest from the relevant instalment date; overpayments accrue repayment interest.

Very large companies. Companies with profits above £20m (divided by associated companies) are "very large" and pay instalments on a brought-forward schedule - the 14th day of months 3, 6, 9 and 12 measured from the start of the period. The very-large regime was introduced in 2019 to accelerate the cash collection from the largest UK companies; in practice the instalments fall before the company's accounting period has ended, requiring forward estimation.

Exceptions. A company does not pay by instalments for a period if its total liability is under £10,000, or if its profits are no more than £10m (divided by associated companies plus one) and it was not large in any accounting period ending in the previous 12 months, or did not exist then. It pays on the normal 9 months and 1 day basis instead (GOV.UK, Pay Corporation Tax if you're a large company).

9. Filing deadlines and payment dates

Two distinct deadlines apply to every Corporation Tax accounting period. Payment is due 9 months and 1 day after the end of the accounting period (for non-large companies; QIPs override this for large companies). The CT600 return, with full iXBRL-tagged accounts and computations, is due 12 months after the end of the period. Tax falls due before the return is filed - companies effectively self-assess and pay the estimated liability first, then file the return three months later with any corrections.

Filing mechanics. The CT600 and accompanying iXBRL-tagged statutory accounts and tax computations must be filed online through HMRC's Corporation Tax Online service or through approved commercial software. The accounts iXBRL tagging follows the UK GAAP or IFRS taxonomy as applicable. For returns due on or after 1 April 2026 a late return attracts a £200 penalty, or £400 if more than three months late (£1,000 and £2,000 where the return is late for the third successive time). Tax-geared penalties of 10% of the unpaid tax (return delivered more than 18 months after the end of the period) or 20% (more than two years after) are added, and HMRC can make a determination of the tax if no return is filed.

Payment mechanics. Corporation Tax is paid electronically to HMRC using the company's Corporation Tax payment reference for the accounting period (GOV.UK, Pay your Corporation Tax bill). Cleared funds must reach HMRC by the due date. Late-payment interest on Corporation Tax runs from the due date at Bank Rate plus 4 percentage points (HMRC interest rates for late and early payments).

Amendments. A company can amend its CT600 within 12 months of the original filing deadline (so 24 months from the end of the accounting period). After that the only routes to revise the figures are an HMRC enquiry, an overpayment relief claim under paragraph 51 schedule 18 FA 1998 (subject to a four-year limit and exclusions), or a discovery assessment by HMRC. Companies should review the CT600 and accompanying iXBRL files carefully before submission because late corrections are procedurally cumbersome.

10. Loss relief and group relief

UK Corporation Tax has an extensive loss-relief regime that allows trading losses to be carried back, carried forward, or surrendered to group members. The regime was reformed substantially from 1 April 2017 to modernise the carry-forward rules and add a deductions allowance restriction; further temporary extensions applied during COVID-19. For FY 2026 the current rules are:

Carry-back of trading losses. Section 37 CTA 2010 allows a current-period trading loss to be set against the total profits (not just trading profits) of the previous 12-month accounting period. The carry-back is the standard rule and requires no special election beyond the section 37 claim itself. The temporary 3-year extended carry-back under Finance Act 2021, capped at £2m per group per year for the excess beyond one year, applied only to losses arising in accounting periods ending between 1 April 2020 and 31 March 2022 in response to the pandemic and is no longer available.

Carry-forward of trading losses. Trading losses arising on or after 1 April 2017 are carried forward without time limit and can be set against the company's total profits in future periods (not only trading profits, in contrast to the pre-2017 streaming rules). Losses arising before 1 April 2017 remain locked to trading profits of the same trade under the pre-2017 streaming rules. The post-2017 carry-forward is subject to the deductions allowance restriction: only £5m per group per year of brought-forward losses can be deducted in full, with any excess restricted to 50% of profits over £5m.

Capital losses. Capital losses are a separate computational stream and can only be set against capital gains (not against trading or other income). Capital losses cannot be carried back. They carry forward indefinitely against future capital gains, and from 1 April 2020 carried-forward capital losses also count against the £5m deductions allowance. Non-trading loan relationship deficits and intangible fixed asset losses follow their own stream-specific rules.

Group relief. Two UK resident companies in a 75% group can surrender losses between themselves under Part 5 CTA 2010 for set-off against the recipient's profits of a corresponding accounting period. The 75% test (at least 75% of ordinary share capital, with matching entitlements to distributable profits and assets on a winding-up) is stricter than the control test for associated companies. The post-2017 regime extended group relief to brought-forward losses, subject to the same deductions allowance restriction; this was a significant easement for groups that historically had to use surplus brought-forward losses inside the single subsidiary that incurred them.

Consortium relief. Where a consortium-owned company (one with multiple corporate shareholders each holding at least 5% and at least 75% in aggregate) makes a trading loss, each consortium member can claim consortium relief proportionate to its shareholding. The conditions are detailed and consortium relief is less common in practice than ordinary group relief.

Anti-avoidance. Loss-relief transactions can be challenged under several anti-avoidance rules: the loss-buying restrictions in Part 14 CTA 2010 (Change in Company Ownership), the targeted anti-avoidance rule (TAAR) on tax-motivated transactions, the unallowable purpose rule on loan relationships, and the general anti-abuse rule (GAAR). Buying a company for its tax losses is restricted by section 673 CTA 2010, which applies where there is a change in ownership and a major change in the nature or conduct of the trade within a five-year period beginning no more than three years before the change.

11. Capital allowances: AIA and Full Expensing

Capital expenditure on plant and machinery and certain other assets attracts capital allowances rather than a deduction against trading profit. The main UK regimes for FY 2026 are the Annual Investment Allowance (AIA), Full Expensing, the special-rate pool 50% first-year allowance, the 40% first-year allowance added by Finance Act 2026, writing-down allowances (14% main pool, 6% special rate pool), structures and buildings allowance, and the various enhanced allowances for specific categories (eg electric vehicle charge points, plant in freeports, R&D capital expenditure).

Annual Investment Allowance. The AIA gives a 100% first-year allowance on qualifying plant and machinery up to a limit of £1m per group per year. The £1m limit was made permanent from 1 April 2023 (it had previously been temporarily set at £1m or various lower amounts since 2008). The AIA is available to both incorporated and unincorporated businesses and can be claimed on most main-pool and special-rate-pool plant and machinery, but not on cars.

Full Expensing. From 1 April 2023, and made permanent by Autumn Statement 2023, companies (but not unincorporated businesses) within the charge to Corporation Tax can claim a 100% first-year allowance on qualifying new and unused main-pool plant and machinery without an upper limit. Full Expensing replaced the previous Super-Deduction (130% allowance) that ran from 1 April 2021 to 31 March 2023. A separate 50% first-year allowance applies to qualifying new special-rate pool expenditure (long-life assets, integral features, thermal insulation). Full Expensing does not cover cars, second-hand assets or assets for leasing. The 40% first-year allowance in section 45U CAA 2001 covers new main-rate plant including assets for leasing, and is also open to unincorporated businesses.

Interaction. The AIA and Full Expensing overlap on main-pool expenditure but Full Expensing has no cap, so companies typically claim Full Expensing on new main-pool plant first and reserve the AIA for special-rate-pool expenditure (where the 50% FYA is less generous than the AIA's 100%). Unincorporated businesses cannot use Full Expensing; they use the AIA and, above it, the 40% first-year allowance. The deductions reduce taxable profits by 100% of the expenditure in the year of acquisition, with the disposal generating a balancing charge on subsequent sale.

Structures and Buildings Allowance. Capital expenditure on the construction or renovation of qualifying non-residential structures and buildings after 29 October 2018 qualifies for SBA at 3% per year straight-line over 33⅓ years. Historic Business Premises Renovation Allowance (BPRA) - a former 100% first-year allowance on renovation in designated disadvantaged areas - was abolished for expenditure after 31 March 2017 (corporation tax) and no longer applies.

13. Related calculators and guides

• Corporation Tax calculator - model the FY 2026 main rate, small profits rate and marginal relief on any profit level.
• Capital allowances calculator - estimate AIA and Full Expensing relief on qualifying plant and machinery.
• Dividend tax calculator - the personal tax cost of extracting post-tax company profit as dividends.
• Business Asset Disposal Relief (BADR) guide - the parallel Capital Gains Tax (CGT) regime for selling the company at exit.
• Sole Trader vs Limited Company - the structure decision that triggers Corporation Tax in the first place.
• Director's Loan Account guide - clearing balances and section 455 charges on overdrawn loans.
• Tax deadlines 2026/27 - the calendar of Corporation Tax, Self Assessment and PAYE deadlines.
• HMRC penalties guide - the penalty regime for late filing and late payment of Corporation Tax.
• Budget 2026 summary - what changed for the 2026/27 tax year.
• SalaryTax methodology - how every figure on this guide is sourced and verified.