Corporation tax in 2026 is a very different animal to the flat 19% rate small UK companies enjoyed pre-April 2023. With a 25% main rate, a 19% small profits rate up to £50,000, and marginal relief tapering the effective rate between £50,000 and £250,000, planning around profit levels matters more than it has in a decade.
The current rates at a glance
- Small profits rate — 19% on taxable profits up to £50,000.
- Marginal relief band — profits between £50,001 and £250,000 attract an effective marginal rate of 26.5%.
- Main rate — 25% on profits above £250,000.
Note that the £50,000 and £250,000 thresholds are divided between associated companies. A group of three trading companies each shares a £16,667 small profits limit, not £50,000 each.
Legitimate planning levers in 2026
1. Pension contributions
Employer pension contributions remain one of the most efficient ways to extract value from a company. They're deductible against corporation tax (subject to the "wholly and exclusively" test), they don't attract employer's NIC, and they move income out of the marginal relief zone.
2. Salary vs. dividend mix
The optimal director remuneration mix shifted materially when the corporation tax regime changed. For many owner-managers, a salary at the NIC secondary threshold, topped up with dividends, still wins — but the precise answer depends on profit level, whether you're inside the marginal band, and whether employment allowance is available.
3. Full Expensing and the Annual Investment Allowance
Full Expensing gives a 100% first-year deduction for qualifying new plant and machinery, with no cap. Combined with the £1m AIA for second-hand assets, capital investment timing can meaningfully reduce taxable profits in high-income years.
4. R&D tax relief — new merged scheme
The merged R&D scheme now applies. SMEs with qualifying activity can still claim, but the rules are tighter and documentation expectations are higher. Under-documented claims are the single biggest cause of HMRC enquiries we see.
5. Timing of income and expenses
If you're on the edge of the £50,000 threshold, deliberately bringing forward an expense — or deferring a sales invoice into the next accounting period — can be the difference between a 19% and a 26.5% effective rate on that slice of profit.
Associated companies — the hidden trap
The associated company rules catch far more businesses than founders expect. Any company under common control counts, and the thresholds divide accordingly. Before you set up a second company for "separation," get advice — the tax cost can outweigh the perceived benefit.
How Tax Falcon helps
We review your projected profit trajectory, your director remuneration structure, your capital investment plans, and any group structure — and we model the combined corporation tax, dividend tax, and personal tax position. Most owner-managed companies we review leave between £4,000 and £20,000 of legitimate tax savings on the table every year.
