Corporation Tax
in London
Corporation Tax in London: What It Is, How It Works, and Why Most Businesses Overpay
Corporation tax is a direct tax on the profits of UK limited companies, foreign companies operating through a UK branch, and certain unincorporated associations. If you run a limited company in London, whether a startup, SME, contractor business, or property company, corporation tax applies to you.
It is calculated annually. Most companies must file their CT600 return and pay any tax owed within 9 months and 1 day of their accounting period end. Unlike VAT or PAYE, corporation tax is self-assessed, so the responsibility for getting it right falls on you and your accountant. From April 2026, HMRC has increased flat-rate penalties for late CT600 filings, making timely submission more important than ever.
The 2026 UK Corporation Tax Rates
The UK operates a tiered corporation tax system. The rate your company pays depends on its taxable profits:
| Rate | Band | Profit level |
|---|---|---|
| 19% | Small profits rate | Up to £50,000 |
| 19–25% | Marginal relief band | £50,001 – £250,000 |
| 25% | Main rate | Above £250,000 |
If your profits fall between £50,000 and £250,000, marginal relief tapers your effective rate. Many directors in this band simply pay 25% across the board because marginal relief was never applied. If your company has associated companies under common control, the profit thresholds are divided between them, which can push you into a higher band with no change in individual profits.
What Counts as Taxable Profit?
Taxable profit is not your revenue, and it is not your accounting profit. It is calculated by taking your gross income and deducting allowable expenses, capital allowances, and applicable reliefs. What remains is what your tax rate applies to.
Key deductions include
- Allowable expenses: costs wholly and exclusively for business use, including salaries, rent, software, travel, insurance, and professional fees.
- Capital allowances: deductions for equipment, machinery, and technology, including full expensing and the Annual Investment Allowance.
- Loss relief: previous trading losses carried forward to offset current or future profits.
- Tax reliefs: HMRC-approved schemes such as R&D tax credits, pension deductions, and charitable donations.
Every pound of legitimate deduction reduces the figure your tax rate is applied to. Understanding what qualifies, and claiming it correctly, is where the real saving happens.
Tax Planning vs Tax Evasion
Tax evasion, such as hiding income, falsifying records, or deliberately misreporting profits, is a criminal offence. Tax planning is entirely different. It means using the reliefs, deductions, and allowances that Parliament has deliberately written into UK tax law to encourage investment, reward innovation, and allow businesses to operate efficiently.
Every legitimate strategy a qualified accountant recommends sits within this category. Any planning you undertake should reflect real business activity. Good tax planning and good business practice are the same thing.
Why So Many London Businesses Overpay
The UK corporation tax system contains dozens of legitimate reliefs. Most London SMEs are not using all of them. The most common reasons businesses pay more than they need to include:
- They only hear from their accountant once a year, after year-end, when most planning opportunities have already passed.
- Allowable expenses such as home office costs, mileage, and professional subscriptions are never claimed.
- Marginal relief is not applied when profits sit in the £50,000–£250,000 band.
- Directors take salary in a way that maximises National Insurance, rather than structuring remuneration tax-efficiently.
- Historical trading losses are not carried forward and offset against current profits.
- R&D activity that qualifies for tax credits goes unclaimed because the business did not realise it qualified.
- Capital expenditure is spread over years when full expensing would allow an immediate deduction.
None of these gaps are the result of wrongdoing. They are the result of reactive compliance: filing on time, paying what appears to be owed, and moving on, rather than proactive planning that looks at the full picture.
For London businesses with profits between £50,000 and £500,000, the difference between well-advised and poorly-advised is often £10,000 to £40,000 in corporation tax per year.
Need a Corporation Tax Review?
Not sure what rate you are actually paying? ENCY&LINE offers a free corporation tax review for London businesses. We check your current position, identify missed reliefs, and tell you exactly where you stand before your next filing deadline.
UK limited companies, foreign companies with a UK branch, and certain unincorporated associations may need to pay corporation tax on taxable profits.
Most companies must pay corporation tax within 9 months and 1 day after the end of their accounting period, with the CT600 return filed within the relevant deadline.
The small profits rate is 19% up to £50,000, the main rate is 25% above £250,000, and marginal relief can apply between those levels.
Yes. Legitimate tax planning can use allowable expenses, capital allowances, loss relief, pension contributions, and approved reliefs such as R&D tax credits where the company qualifies.
Common causes include missed expenses, unused loss relief, overlooked marginal relief, poor salary and dividend planning, and year-end-only accounting support.
Bookkeeping support for London businesses
