Why is my Corporation Tax bill higher than 19%?
Your Corporation Tax bill may be higher than 19% because the UK no longer has a single Corporation Tax rate for all non-ring fence company profits. A standalone company usually pays 19% only where taxable profits are £50,000 or less. If taxable profits are between £50,000 and £250,000, marginal relief applies. If profits are over £250,000, the main rate is usually 25%.
GOV.UK’s Corporation Tax rates guidance explains that companies pay the rates that applied in their Corporation Tax accounting period.
Merranti’s Corporation Tax explained guide is a useful starting point because many directors still assume Corporation Tax is a flat 19%, when the real rate depends on profits, reliefs, associated companies and the accounting period.
Merranti’s Corporation Tax marginal relief guide is also useful if your profits are between £50,000 and £250,000.
Corporation Tax is not always 19%
For many years, directors became used to a simple Corporation Tax message: profits were taxed at 19%.
That is no longer the full position.
GOV.UK’s Corporation Tax rates and allowances page lists the small profits rate at 19%, the main rate at 25%, and marginal relief limits of £50,000 and £250,000 for Corporation Tax years starting 1 April.
That means the rate depends on the company’s profit level.
Broadly, for a standalone company with a 12-month accounting period:
profits of £50,000 or less usually fall within the small profits rate
profits between £50,000 and £250,000 may fall within marginal relief
profits over £250,000 usually fall within the main rate
This is why a profitable company may see a Corporation Tax bill that feels much higher than expected.
The company may not have done anything wrong. It may simply have moved out of the 19% band.
Corporation Tax is based on taxable profit, not bank balance
Corporation Tax is charged on taxable profit.
That is not always the same as the money in the company bank account.
A company may have cash in the bank because customers paid quickly, because suppliers have not yet been paid, or because money has been borrowed. That does not mean the full bank balance is taxable profit.
A company may also have a low bank balance but still owe Corporation Tax because profits were made earlier in the year and the cash has since been spent.
Merranti’s Corporation Tax explained guide is useful here because Corporation Tax is based on the company’s taxable profits after accounting and tax adjustments, not simply on what is left in the bank.
This is one reason directors are often surprised.
They look at the bank balance. The tax calculation looks at taxable profit.
Those are not the same thing.
How marginal relief works
Marginal relief applies where profits sit between the lower and upper Corporation Tax limits.
GOV.UK’s marginal relief page explains that marginal relief provides a gradual increase in the Corporation Tax rate between the small profits rate and the main rate.
This means a company does not usually jump straight from 19% to 25% as soon as profit goes above £50,000.
Instead, the effective rate increases as profit rises through the marginal band.
For example, a standalone company with taxable profits of £60,000 is only just into the marginal band.
A standalone company with taxable profits of £200,000 is much closer to the main rate.
Both companies may be within the marginal relief rules, but the effective tax rate will not be the same.
Merranti’s Corporation Tax marginal relief guide explains why the marginal band can feel confusing, especially where directors expect either 19% or 25% but receive a calculation somewhere in between.
Why the marginal band can feel expensive
The marginal relief band can feel expensive because extra profits within the band can be taxed at a higher marginal rate than directors expect.
The headline message is that marginal relief creates a gradual move from 19% to 25%.
But in practice, the tax cost of additional profit inside the band can feel sharper than a simple average rate suggests.
This is why year-end planning matters.
If a company is just above £50,000 of taxable profits, legitimate pension contributions, equipment purchases, timing of costs or other allowable planning may make a meaningful difference.
If a company is near £250,000, planning may still matter, but the company may already be close to the full main rate.
The answer is not to spend money just to reduce tax.
Spending £10,000 to save part of that amount in Corporation Tax is not automatically sensible. The business should only bring forward costs or make investments where they are commercially useful.
Merranti’s business expense guide is relevant because expenses need to be genuinely allowable and properly evidenced before they reduce taxable profit.
Associated companies can reduce the thresholds
Associated companies are one of the main reasons a Corporation Tax bill may be higher than expected.
GOV.UK’s Corporation Tax rates guidance says the £50,000 and £250,000 thresholds are reduced by the total number of associated companies.
HMRC’s Company Taxation Manual on associated companies explains that, where a company has associated companies, the upper and lower limits are divided by the total number of associated companies, including the company itself.
For example, if one person controls two associated companies, the limits may effectively be split between them.
Instead of one company having a lower limit of £50,000 and upper limit of £250,000, each company may have reduced limits.
This can bring a company into marginal relief or the main rate sooner than expected.
It is especially relevant where a director has:
a trading company
a property company
a separate consultancy company
a family company structure
a dormant or low-activity company under common control
group companies
side project companies
The associated company rules should be checked before assuming the standard thresholds apply.
Short accounting periods can also reduce the limits
The Corporation Tax thresholds assume a 12-month accounting period.
If the accounting period is shorter, the limits are proportionately reduced.
GOV.UK’s Corporation Tax rates guidance says the £50,000 and £250,000 thresholds are proportionately reduced for short accounting periods.
This can matter when:
a company is newly incorporated
the first accounts period is split
the company changes its year end
the company has a short final period before closure
the accounting period is less than 12 months for tax purposes
For example, if a company has a 6-month accounting period, the profit thresholds may be halved.
This can surprise directors in the first year because Companies House accounts and Corporation Tax periods do not always line up neatly.
Merranti’s limited company accountant guide is useful if the company is new, because first-year accounts and tax returns can create timing issues that are easy to miss.
Expenses and allowances can change taxable profit
Corporation Tax planning is not only about the rate.
It is also about the profit figure being taxed.
A company may be able to claim allowable expenses, capital allowances, pension contributions, loss relief or other reliefs, depending on the facts.
GOV.UK’s Corporation Tax allowances and reliefs guidance explains that a limited company may be able to claim allowances and reliefs to reduce its tax bill, including capital allowances on assets kept for use in the business.
This can include equipment, machinery and business vehicles in the right circumstances.
However, not every payment from the company bank account is an allowable deduction.
Client entertaining is usually disallowed. Personal costs are not ordinary business expenses. Some assets need capital allowance treatment rather than direct deduction.
Merranti’s company expense guide is useful because the wrong expense treatment can either overstate tax or create HMRC risk.
Director salary can affect Corporation Tax
Director salary can reduce company profit where it is properly paid through payroll and is an allowable cost.
This means the salary decision can affect Corporation Tax.
However, it also affects the director’s personal tax and National Insurance position.
A higher salary may reduce Corporation Tax, but it can create PAYE, employee National Insurance and employer National Insurance costs.
Dividends are different. They are paid from post-tax profits and do not reduce Corporation Tax.
Merranti’s salary and dividends guide is useful because salary, dividends, Corporation Tax and National Insurance need to be reviewed together.
The correct question is not just:
“How do I reduce Corporation Tax?”
The better question is:
“What is the best combined company and personal tax outcome?”
Those are not always the same thing.
Pension contributions can be relevant
Employer pension contributions can sometimes be useful for Corporation Tax planning.
If the company makes an employer pension contribution for a director or employee, it may reduce taxable profit where it is wholly and exclusively for the company’s business and meets the relevant pension rules.
This can be useful where a company is in the marginal relief band and the director wants to move company profits into retirement planning rather than personal dividends.
However, pension planning should not be done only to reduce Corporation Tax.
The company must have cash available. The contribution should fit the director’s financial plan. Annual allowance rules and pension limits should also be checked.
Merranti’s Corporation Tax marginal relief guide is relevant because pension contributions can affect where the company sits within the marginal band.
Corporation Tax payment deadline catches directors out
The Corporation Tax payment deadline is earlier than many directors expect.
GOV.UK’s limited company accounts and tax return guidance explains that Corporation Tax is usually due 9 months and 1 day after the end of the accounting period, while the Company Tax Return is usually due 12 months after the accounting period.
This means you may need to pay Corporation Tax before the tax return filing deadline.
That causes problems where accounts are left until the last minute.
If the tax calculation is not prepared until close to the filing deadline, the payment may already be late.
Merranti’s Corporation Tax explained guide is useful because directors need to understand both the tax calculation and the payment timing.
Common reasons Corporation Tax is higher than expected
The first reason is that profits are above £50,000.
A company may no longer be fully within the 19% small profits rate.
The second reason is marginal relief.
The effective rate can rise as profits move between £50,000 and £250,000.
The third reason is associated companies.
If there are companies under common control, the thresholds may be reduced.
The fourth reason is a short accounting period.
A shortened Corporation Tax period can reduce the profit limits.
The fifth reason is missing or disallowed expenses.
If costs are not allowable, not recorded, or not supported by evidence, taxable profit may be higher.
The sixth reason is poor salary and dividend planning.
Dividends do not reduce Corporation Tax. Salary may, but it brings payroll and National Insurance issues.
The seventh reason is leaving planning too late.
After the year end, some options may no longer be available.
Speak to Merranti before your year end
A higher Corporation Tax bill is not always wrong, but it should be understood.
A proper review should check taxable profit, the Corporation Tax rate, marginal relief, associated companies, short accounting periods, allowable expenses, capital allowances, director salary, dividends, pension contributions and payment deadlines.
Merranti’s Corporation Tax explained guide, Corporation Tax marginal relief guide, business expense guide, salary and dividends guide and director’s loan guide are useful starting points.
If your company’s Corporation Tax bill is higher than expected, contact Merranti Accounting before the year end or before the payment deadline so the calculation and planning options can be reviewed properly.
Why is my Corporation Tax not 19%?
Your Corporation Tax may not be 19% because the small profits rate usually applies only where taxable profits are £50,000 or less. Companies with higher profits may fall into marginal relief or the 25% main rate. GOV.UK’s Corporation Tax rates guidance explains the current rates.
What is the Corporation Tax rate in 2026?
GOV.UK lists the small profits rate at 19%, the main rate at 25%, and marginal relief between £50,000 and £250,000 for companies that qualify. GOV.UK’s rates and allowances page gives the current rates.
What is marginal relief for Corporation Tax?
Marginal relief gradually increases the effective Corporation Tax rate between the small profits rate and the main rate. GOV.UK’s marginal relief page explains who can claim and how it works.
Do associated companies affect Corporation Tax?
Yes. Associated companies can reduce the £50,000 and £250,000 limits because the thresholds are divided between associated companies. This can bring a company into a higher effective rate sooner.
Does salary reduce Corporation Tax?
Salary can reduce Corporation Tax where it is an allowable company expense and is processed correctly through payroll. However, it can also create Income Tax and National Insurance costs, so the full company and personal tax position should be reviewed.
When is Corporation Tax due?
Corporation Tax is usually due 9 months and 1 day after the end of the accounting period. The Company Tax Return is usually due 12 months after the accounting period. GOV.UK’s limited company accounts and tax return guidance explains the deadlines.
