UK corporate tax rate, incentives, filing dates, and compliance explained

Why expand to the UK?

Ahead of her trip to Davos for the World Economic Forum in January 2026, UK Chancellor Rachel Reeves chalked out the UK's position in the international business landscape:

"In a volatile world, Britain stands out. This government is making sure Britain is home to the stability, talent and capital that businesses and investors want and that drive greater growth... Some countries give you a platform, but Britain gives you momentum. My message at Davos this week is clear: choose Britain – it’s the best place in the world to invest."

Her words underscore the United Kingdom's resolve to attract global businesses and investment on the back of its stable economy, skilled workforce, strong consumer market, and position as a gateway to Europe. For global businesses looking for a new base, the UK comes with unbeatable advantages:

• It is the sixth-largest economy by nominal GDP.
  
• It ranks eighth in the World Bank's 'Ease of Doing Business' index.
  
• It embodies 'Four Nations One Market' – offering opportunities across England, Scotland, Wales, and Northern Ireland while working as one consolidated free market.
  
• It connects businesses to the European Union (EU) and has close trading ties with the US.
  
• Its central time zone eases the process of communicating with international suppliers and clients.
  

UK corporate tax

What makes the United Kingdom's corporate tax system unique is its tiered structure, with company profits thresholds determining tax rates. The main rate of corporation tax is 25%. Companies with lower annual profits benefit from considerably reduced corporation tax rates.

UK resident companies are taxed on worldwide profits. In contrast, non-resident companies pay tax on:

• Trading profits attributed to a UK permanent establishment (PE)
  
• Trading profits from dealing in or developing UK land, whether through a PE or not
  
• Gains from the direct and indirect disposal of UK property
  
• UK property rental business profits along with UK income tax on any other UK-source income.
  

The HMRC (His Majesty’s Revenue and Customs) is the authority responsible for tax collection in the UK.

Tax rates and structures

There are three corporation tax tiers in the United Kingdom:

• Main corporation tax rate: Companies with annual profits exceeding GBP 250,000 pay corporation tax at the main rate of 25%.
  
• Small profits rate: For companies with profits less than GBP 50,000, a lower small profits rate of 19% applies.
  
• Marginal relief: Companies with profits between GBP 50,000 and GBP 250,000 are taxed at the main rate of 25%, but receive marginal relief. This relief reduces the effective tax rate on profits within this band, creating a gradual transition between the 19% small profits rate and the 25% main rate rather than a sudden jump in tax liability.
  

Different corporation tax rates might apply on certain types of profits, such as:

• Profits from oil and gas exploration in the UK and the UK Continental Shelf. Called ring fence profits, these are taxed at a higher 30% (for companies with profits above the GBP 250,000 threshold) and may even be subject to an additional 10% charge to tax and 38% windfall tax. Smaller companies with profits below the GBP 50,000 threshold are eligible for the reduced 19% rate.
  
• Life insurance companies also offer different corporate tax rates. Also, a life insurance provider must pay corporation tax on investment income, which it then passes on to policyholders.
  
• The banking sector invites an additional 3% surcharge on taxable profits in excess of GBP 100 million.
  

Businesses can reduce their profit thresholds if they have associated companies. This impacts their tax rates as well. In the UK, companies are said to be associated if they are controlled by the same person/persons or if one company controls the other.

Accounting period is another factor that impacts profit thresholds. The traditional accounting period is 12 months, though UK companies can prepare statutory accounts for up to 18 months. If the period is shorter than 12 months, the profits threshold is proportionally reduced. And if a company's accounts cover more than 12 months, they must be split into two or more accounting periods.

What is taxable income?

In the UK, taxable income or taxable profits are those arising from doing business (trading profits), investments, and asset sales for more than they cost (chargeable assets).

To determine taxable income, take profits and make allowable deductions. These include expenses incurred wholly in conducting business and include:

• Salaries
  
• Rent and utilities
  
• Professional fees (legal, accounting, audit, etc)
  
• Directors' costs
  
• Business travel expenses
  
• Charitable contributions
  
• Municipal taxes
  
• Bad debts.
  

Capital allowances are a slightly different category of allowable deductions, helping companies write off part or all of the value of an asset. The UK allows capital allowances on assets such as equipment, machinery, and business vehicles. There are various types of capital allowances:

• Annual investment allowance: Claim up to GBP 1 million on plant and machinery.
  
• 100% first-year allowance: Claim the full amount of the asset in the year it was bought.
  
• 50% special rate first-year allowance: Applicable on certain plant and machinery bought between April 1, 2021, and March 31, 2023.
  
• Full expensing and 50% first-year allowance: Applicable on eligible plant and machinery investment from March 31, 2023 onwards.
  
• Writing down allowances: Claim if you're not eligible for annual investment allowance or if you have already claimed the maximum amount.
  

If an asset qualifies for more than one allowance, companies may opt for the one leading to the most savings.

In the computation of UK corporation tax, certain expenses are non-deductible, including entertainment expenses, fines and penalties, and depreciation costs.

Historical tax rates and recent reforms

The tiered corporate tax system was introduced in 2023. Prior to this, companies paid a flat corporation tax rate of 19%, which had been in effect since 2017 and is the lowest UK corporation tax rate on record. Historically, the UK has operated much higher corporate tax rates, peaking at over 50% in the early 1980s, before undergoing decades of gradual reduction and structural reform.

Apart from the tiered corporate tax system, the UK has implemented other tax reforms in recent years.

The latest is a 40% first-year allowance applicable on eligible assets from January 2026. This provides additional relief to businesses on assets that would have otherwise received an 18% write-off at best (further reduced to 14% from April).

Additionally, amendments are planned to the Multinational Top-up Tax and Domestic Top-up Tax applicable to multinational companies with annual global revenues above 750 million euros conducting business in the UK.

Tax incentives and exemptions

Apart from tax advantages in the form of capital allowances, the UK offers various other tax incentives:

• Foreign tax credit: Resident companies that pay tax on foreign income that is also taxed in the UK can receive credit relief against their UK tax liability. This tax credit is the lower of the foreign tax paid and the UK tax liability.
  
• R&D incentives: Tax relief is provided on expenses incurred on research and development in the form of a 100% tax deduction (capital allowance) or 20% tax credit. Furthermore, R&D-intense small businesses that are loss-making may receive an additional deduction at the rate of 86%. And, if the investment results in a loss to the SME, it may surrender some or all of the loss for a tax credit payable at 14.5%.
  
• Patent Box: Under this incentive, taxable profits attributable to eligible patent inventions benefit from a reduced corporation tax rate of 10%.
  

The UK doesn't operate tax holiday schemes or preferential tax regimes based purely on foreign investor status. Instead, it applies a neutral tax framework where incentives are activity-based, allowing both domestic and foreign companies to benefit equally from innovation-driven and investment-linked reliefs.

When to file tax returns

Corporation tax returns are due within a year after the accounting period ends. Returns must be filed electronically, in a specific machine-readable format, and comprise a self-assessment of the tax due.

The deadline for corporation tax payment is nine months and one day after the accounting period ends.

Large companies with profits exceeding GBP 20 million are required to make corporation tax payments in quarterly instalments in the third, sixth, ninth, and 12th months. However, this requirement is only relevant to accounting periods from April 1, 2019, onwards.

Tax payments must be made in GBP. Most companies pay corporation tax through the HMRC's online services.

Reducing tax burden with double taxation agreements

The United Kingdom has an extensive network of double taxation agreements (DTAs) with more than 100 countries, including Singapore. These treaties exist to prevent tax avoidance and help businesses avoid paying tax on the same income twice. Under DTAs, companies receive credit relief and benefit from reduced withholding tax rates on passive income sources such as dividends, interest, and royalties. A DTA might even help companies qualify for a foreign tax credit that they otherwise wouldn't under a unilateral foreign tax credit scheme.

Established almost three decades ago, the Singapore–UK double taxation agreement reduces withholding tax on cross-border income such as dividends, interest, and royalties. The applicable rates vary depending on ownership structure and income type, and in some cases may be reduced to low or zero rates under treaty provisions. The agreement also provides a clear definition of permanent establishment, helping companies in both countries determine taxable presence and compliance obligations.

Tax treatment of dividends in UK

For standard UK limited companies, dividends paid to resident and non-resident companies are not subject to withholding tax.

An exception applies to certain regulated investment structures, such as Real Estate Investment Trusts (REITs) and Property Authorised Investment Funds (PAIFs), where distributions of property income are subject to withholding tax at 20%. For these specific entities, the rate is currently legislated to increase to 22% for relevant dividends made on or after 6 April 2027.

This withholding tax regime does not apply to ordinary trading companies operating under standard limited company structures.

Other taxes in the UK

Apart from corporation tax, businesses are subject to the following taxes in the United Kingdom:

VAT

Most goods and services are subject to value-added tax (VAT) at 20%. However, exports, food items, public transport, and essential goods and services are zero-rated. There are also reduced-rate supplies, such as household fuel and power, that are taxed at 5%. Furthermore, small businesses (less than GBP 150,000 a year in supplies) with limited expenses can avail of VAT at a special sector-specific flat rate.

Customs and excise duties

Imported goods in the UK attract customs duty, while excise duties are applicable on most hydrocarbon oil products, alcoholic drinks, and tobacco products produced in or imported into the United Kingdom.

Digital services tax

Certain digital businesses in the United Kingdom are subject to a 2% digital services tax on the revenue of search engines, social media platforms, and online marketplaces that derive value from UK users. This tax is only applicable to companies with UK revenues exceeding GBP 25 million a year from such activities.

Stamp taxes

Local and overseas companies in the UK might have to pay various kinds of stamp taxes – including a 0.5 duty on instruments regarding share sales, and a stamp duty land tax of up to 5% on the acquisition of non-residential or mixed land and buildings in England and Northern Ireland.

Environmental taxes

These include landfill taxes for waste disposal, a climate change levy on energy supplies to business users, a plastic packaging tax, and so on.

Local municipal taxes

These business taxes are levied not on income but on business property and are administered by local government authorities.

Annual tax on enveloped dwellings

The acquisition of high-value (over GBP 500,000) residential properties through a company is subject to an annual tax on enveloped dwellings.

Tax compliance and registration

Corporate tax compliance and reporting is critical to business success in the UK. Here's what companies must do:

• To be able to pay UK corporation tax, business owners must register their company with Companies House or add Corporation Tax Services to their business tax accounts.⁶
  
• Make timely tax filings and payments to avoid penalties and HMRC compliance checks. Remember deadlines for filing corporation tax returns and making tax payments.
  
• Maintain accurate and complete records.
  
• Follow these best practices to stay compliant and save hundreds of pounds in penalties.
  

How Aspire can help your expansion into the UK

Aspire offers various useful tools that can boost your company's expansion into the UK. These include:

• Our multi-currency business account, which allows you to make and receive payments in 30+ currencies across 130 countries at market-leading FX rates and low and transparent pricing.
  
• It comes with unlimited virtual corporate cards that boost cash flow and fuel business growth, so you can scale at speed. These cards come with customised spend limits, budgets, and automated receipt reminders.
  
• Our global payments platform makes transacting across borders seamless with same-day international transfers in 15+ currencies.
  

Frequently Asked Questions

How to calculate UK corporate tax?

The formula to calculate UK corporation tax is annual profits minus allowable deductions, including capital allowances.

When did UK corporation tax go up to 25%?

The UK raised the corporation tax main rate from 19% to 25% on April 1, 2023.

How to minimise corporation tax in the UK?

Companies can minimise their corporation tax bill by claiming all allowable deductions and capital allowances, leveraging tax incentives and tax relief under double taxation agreements, and claim small profits rate or marginal relief rates if applicable.

How much tax do limited companies pay in the UK?

UK limited companies pay corporation tax at the main rate of 25%, small profits rate of 19%, or marginal relief rates between 19% and 25%, depending on their profits threshold.

What is the corporate tax rate in the UK 2025?

The corporation tax rate in the UK was 25% in 2025, with a reduced rate of 19% for small businesses.

Is the UK the most heavily taxed country?

No, the UK isn't the most heavily taxed country, not even in Europe, where countries like Germany and Italy have higher effective corporate tax rates.