Corporation Tax for Trade Limited Companies — Rates, Deadlines and How to Pay Less Legally (2026)

What Corporation Tax Is Charged On

Corporation tax is charged on your company's taxable profit for an accounting period — broadly, your income less your allowable business expenses and capital allowances. For most trade companies the bulk of that is trading profit (what you make from the jobs you do), but it also includes any chargeable gains — for example, a profit on selling an asset such as a commercial premises or a vehicle above its tax written-down value.

The key thing to understand is that this is the company's tax. It is calculated on the company's profit, not on how much money you personally take out. It is entirely separate from how you pay yourself. Whether you take a salary, dividends, or leave money in the company, the corporation tax on the profit is worked out first. How you then extract that money — usually a mix of a modest salary and dividends — is a separate set of decisions with its own personal tax consequences (dividend tax, income tax and National Insurance). Don't confuse the two: paying yourself a dividend does not reduce your corporation tax, because dividends are paid out of post-tax profit.

The Corporation Tax Rates (2025/26)

For the 2025/26 financial year there are two headline rates, with a tapered band in between:

• Small profits rate — 19% on taxable profits up to £50,000.
• Main rate — 25% on taxable profits over £250,000.
• Profits between £50,000 and £250,000 are taxed at the main rate of 25% but reduced by marginal relief, which gives an effective rate that tapers between 19% and 25% as profits rise.

Most established sole-trader-turned-limited trade companies sit in or around that middle band, so marginal relief matters. In practical terms, the effective rate on profit in the marginal band works out at around 26.5% on the slice between £50,000 and £250,000 — that's the cost of moving from the 19% band up toward the 25% rate. Your accounting software or accountant will calculate marginal relief automatically; you don't apply 25% to everything above £50,000.

One catch that trips up directors with more than one company: the £50,000 and £250,000 thresholds are divided by the number of associated companies. If you control two companies, each one's small profits limit drops to £25,000 and its upper limit to £125,000. So setting up a second company doesn't hand you a fresh set of low-rate bands. These figures are for 2025/26 — check the current rates and thresholds with HMRC or your accountant, as they are reviewed each year.

Quick reference: rate bands (2025/26)

General guide for 2025/26 only — thresholds are divided by the number of associated companies. Always confirm current rates with HMRC or your accountant.

Allowable Expenses — What Reduces Your Taxable Profit

You only pay corporation tax on profit, so every legitimate business cost you record reduces the bill. The test HMRC applies is that an expense must be incurred "wholly and exclusively" for the purposes of the trade. For a typical trade company, the allowable costs that bring taxable profit down include:

• Materials and consumables used on jobs
• Subcontractor costs (labour you pay out, including under CIS)
• Staff wages and employer's National Insurance
• Your own salary as a director (a deductible cost to the company) — but not dividends, which are paid from post-tax profit
• Van and vehicle running costs — fuel, insurance, servicing, repairs, road tax
• Tools and equipment, typically claimed through capital allowances and the Annual Investment Allowance (AIA) rather than as a straight expense
• Insurance — public liability, employer's liability, tools and van cover
• Accountancy and bookkeeping fees
• Premises costs — yard, unit or workshop rent, business rates, utilities
• Phone and broadband used for the business
• Marketing — website, vehicle signage, leaflets, advertising
• Training that maintains or updates existing trade skills
• Employer pension contributions, including into your own director's pension

Capital items like a van, a larger machine or a fit-out are usually relieved through capital allowances. The Annual Investment Allowance lets you deduct the full cost of most qualifying plant, machinery, tools and commercial vehicles in the year you buy them, up to a generous annual limit — so a £20,000 van bought in the year can often be set fully against profit. Cars are treated differently and attract restricted allowances based on emissions.

Some costs are specifically disallowable — they don't reduce taxable profit even though the company paid for them. The common ones for trades are client entertaining, fines and penalties (including speeding and parking fines), and anything that is genuinely personal rather than for the business. If a cost has a mix of business and private use, only the business proportion is allowable. This is general guidance — your accountant can confirm exactly what qualifies in your situation.

The Deadlines — the Bit People Get Wrong

Corporation tax has an unusual quirk that trips up almost every new director: you have to pay it before you file the return. The two dates are different.

• Pay your corporation tax: 9 months and 1 day after the end of your accounting period. For a year end of 31 March, payment is due by 1 January.
• File your Company Tax Return (the CT600): within 12 months of the end of your accounting period. For a 31 March year end, that's 31 March the following year.

So the money is due roughly three months before the paperwork. Don't wait until the filing deadline to think about it — by then the payment is already late and interest is running. In practice your accountant will usually prepare the accounts and the CT600 well ahead of the payment date so you know the figure in good time, then file once you've paid.

A few other administrative points:

• You must register for corporation tax with HMRC, normally within three months of starting to trade through the company.
• You file the CT600 and accounts online with HMRC, and you also file accounts with Companies House (the deadlines and formats differ, so don't assume one covers the other).
• Large companies — those with very high profits — pay corporation tax in quarterly instalments rather than in one go. Most trade companies are well below that threshold and pay in a single payment, but it's worth knowing the rule exists if you grow.

Quick reference: the key dates (31 March year end example)

Note the payment deadline falls before the filing deadline. Dates shown assume a 31 March accounting period end — yours will differ. Confirm your own dates with HMRC or your accountant.

Penalties for Getting It Wrong

HMRC treats late filing and late payment separately, and both cost money.

• Late filing of the CT600 brings escalating penalties — a fixed penalty as soon as the return is a day late, a further fixed penalty if it's three months late, and percentage-based penalties on the tax due if the return is six and then twelve months late. Repeated lateness pushes the fixed penalties higher.
• Late payment of the tax doesn't carry a fixed penalty in the same way, but HMRC charges interest on every day the tax is unpaid after the 9-months-and-a-day deadline. The longer it's outstanding, the more it costs.

The single most effective thing you can do is diarise the 9-months-and-a-day payment date the moment your accounting period ends, and have the cash ready for it. Most late-payment interest charges are entirely avoidable and come down to nothing more than the date catching a director by surprise.

Legitimate Ways to Reduce the Bill

There's no clever trick that makes corporation tax disappear, but there is plenty of straightforward, legal planning that keeps the bill as low as it should be. The aim is to make sure your taxable profit reflects all your genuine costs — not to invent deductions. The main levers for a trade company are:

• Claim every allowable expense. Missed costs are the most common reason trade companies overpay. Capture small recurring items — parking, consumables, phone, protective clothing — as well as the big ones.
• Use capital allowances and the AIA. Tools, plant, equipment and commercial vehicles bought for the business can usually be deducted in full in the year of purchase. Timing a planned van or machine purchase before your year end can bring the relief forward.
• Employer pension contributions for directors. Company pension contributions into a director's pension are one of the most tax-efficient deductions available — the contribution reduces taxable profit and isn't taxed as your income at the point it's paid in. This is a genuinely powerful lever for profitable trade companies; speak to a financial adviser about the limits.
• Your director's salary. A salary is a deductible company cost (unlike dividends). Setting a sensible salary is part of the overall mix and reduces company profit, though it interacts with personal tax and National Insurance, so it's a balancing act your accountant can optimise.
• Timing of income and expenditure around the year end. Where you have genuine flexibility, bringing forward deductible costs or aligning income with the right period can smooth your profit. This must reflect real commercial activity, not artificial shifting.
• R&D relief — with caution. R&D tax relief is generous but rarely applies to standard trade work. Genuine product development or novel technical problem-solving might qualify; routine installation, repair and construction work does not. Be very wary of agents who claim every trade business can make an R&D claim — HMRC scrutiny on this has tightened sharply, and a bad claim can cost you far more than it saves.

The thread running through all of this is that it's legal planning, not avoidance: claim what you're genuinely entitled to, keep good records to back it up, and don't reach for anything that doesn't reflect reality. For most trade companies a good accountant pays for themselves several times over, simply by making sure nothing legitimate is missed and the bill is calculated correctly. The figures and reliefs here are general information for 2025/26 — confirm what applies to you with HMRC or your accountant.

Practical Tips for Trade Directors

Most corporation tax pain isn't about the rules — it's about cash and habits. A few practical disciplines keep you out of trouble:

• Set the tax money aside as profit comes in. Move a percentage of every profitable job into a separate tax pot or savings account and don't touch it. The bill is predictable; the only reason it hurts is when the money has already been spent.
• Keep business and personal money separate. Run everything through the company bank account and use a company card for company costs. Mixing the two makes bookkeeping a nightmare and risks missed deductions or accidental overdrawn director's loans.
• Do your bookkeeping monthly, not once a year. A monthly routine means you always know roughly what profit you're sitting on, what tax is building up, and whether you can afford that new van. Year-end scrambles are where mistakes and missed costs happen.
• Don't confuse company money with your money. The cash in the company account isn't all yours — some of it belongs to HMRC and some is working capital. Take money out properly, through salary and dividends, and only what the company can genuinely afford after tax.

Frequently Asked Questions

What is the corporation tax rate for 2025/26?

For 2025/26 the small profits rate is 19% on taxable profits up to £50,000, and the main rate is 25% on profits over £250,000. Profits between £50,000 and £250,000 are taxed at 25% reduced by marginal relief, giving an effective rate that tapers between the two. These thresholds are divided by the number of associated companies. Rates are reviewed annually, so check the current position with HMRC or your accountant.

When do I have to pay corporation tax?

You must pay corporation tax 9 months and 1 day after the end of your accounting period. The Company Tax Return (CT600) is filed separately, within 12 months of the period end — so payment is actually due before the filing deadline. For a 31 March year end, payment is due by 1 January and the return by the following 31 March. Very large companies pay in quarterly instalments, but most trade companies pay in a single payment.

What expenses can my limited company claim?

Anything incurred wholly and exclusively for the business: materials, subcontractor costs, staff wages and employer's NIC, your own director's salary, van and vehicle running costs, tools and equipment (via capital allowances/AIA), insurance, accountancy, premises, phone, marketing, training and employer pension contributions. Dividends are not a deductible expense. Client entertaining, fines and genuinely personal costs are disallowable. Confirm specifics with your accountant, as the detail depends on your circumstances.