In August 2026, the Burnham government confirmed that the main rate of Corporation Tax will not exceed 25% for the duration of this parliament. For business owners and directors, this is one of the most practically useful commitments the government could make. Not because the current rate is particularly generous — 25% on profits above £250,000 is the highest it has been since 2010 — but because certainty has its own value. You can plan a business investment, a recruitment decision, or a profit extraction strategy with confidence in what the tax cost will be.
This article explains what the confirmation means in practice, what is still uncertain around Corporation Tax, and how to use the current rate structure to plan as efficiently as possible for the period ahead.
What Has Been Confirmed
The main rate of Corporation Tax — currently 25% on profits above £250,000 — will not increase. The small profits rate of 19% on profits up to £50,000, and the marginal relief applying between £50,000 and £250,000, remain in place. No changes to these thresholds or rates are expected from the Burnham government within this parliament.
This was not a trivial assurance. Before the confirmation, there had been credible speculation that the new Chancellor might seek additional revenue from corporate taxation, given the tight fiscal headroom identified in the OBR's most recent assessment. The government's decision to lock in the 25% cap removes that uncertainty from the planning environment.
What Is Still Uncertain Around Corporation Tax
The government's commitment covers the rate. Several other aspects of Corporation Tax remain either in consultation or on the long-term agenda.
Making Tax Digital for Corporation Tax — the extension of quarterly digital reporting requirements to limited companies — remains on HMRC's roadmap. No mandatory start date has been confirmed for MTD for CT, and the 2026 HMRC consultations suggest it is unlikely to be introduced before 2028 at the earliest. But it is coming, and businesses should ensure their accounting software is capable of handling quarterly reporting when the obligation eventually arrives.
The associated companies rules — which determine how Corporation Tax thresholds are divided when a director controls multiple companies — are unchanged, but they remain complex and poorly understood. Directors who operate more than one company should review how the rules affect their threshold calculations, since the £50,000 and £250,000 limits are divided between associated companies rather than each company benefiting from the full thresholds.
Research and Development tax credits — the merged RDEC scheme introduced from April 2024 — are subject to ongoing scrutiny. HMRC continues to tighten its compliance approach to R&D claims, with advance notification requirements and additional information forms now mandatory. The rate itself (a 20% above-the-line credit for most companies) is unchanged, but the conditions for claiming are tighter than they were three years ago.
How to Plan Under the Current Rate Structure
With the rate confirmed, the current Corporation Tax structure creates three planning zones that every business owner should understand.
Below £50,000 of taxable profit, Corporation Tax applies at 19%. This is the rate that applies to many smaller owner-managed businesses and most start-ups. At this rate, the tax cost of retaining profits in the company is relatively low — less than a fifth of profits go to HMRC, leaving the majority available for reinvestment, debt repayment, or eventual extraction.
Between £50,000 and £250,000, the effective rate increases progressively from 19% to 25% through the marginal relief mechanism. A company with taxable profits of £150,000 pays an effective rate of approximately 22% — meaningfully above the small profits rate but below the main rate.
Above £250,000, the full 25% rate applies. At this level, the incentive to reduce taxable profits through legitimate means — employer pension contributions, capital investment using the Annual Investment Allowance, R&D claims where applicable — is most powerful. Each £1,000 of additional deductible expenditure saves £250 in CT at the main rate.
The Key Planning Actions for 2026/27
The confirmation of rates makes certain planning steps more straightforward to evaluate.
Employer pension contributions remain the single most powerful tool for reducing Corporation Tax while building long-term wealth. A £30,000 employer pension contribution reduces Corporation Tax by £7,500 at the 25% rate — effectively meaning the government funds a quarter of the contribution. With the annual allowance at £60,000 and carry-forward available from the previous three years, many business owners can make substantial contributions in 2026/27.
Capital investment through the Annual Investment Allowance qualifies for 100% first-year relief. Equipment, machinery, commercial vehicles, and certain building fixtures can be fully deducted in the year of purchase, reducing taxable profit immediately rather than being depreciated over time. At 25% CT, a £40,000 piece of equipment that qualifies for AIA saves £10,000 in tax in the year of purchase.
The timing of profit recognition and expenditure matters at the marginal relief boundary. A company expecting to generate £180,000 of profit in 2026/27 that can bring forward a capital purchase or pension contribution to reduce profit below £50,000 effectively reduces its average CT rate significantly. The numbers are worth modelling before the year end.
For companies with multiple directors or family shareholders, dividend and salary decisions interact directly with the Corporation Tax position. Employer NI on salaries above £5,000 is deductible — creating a tax-efficient extraction route that also reduces CT. Dividends are paid from post-CT profits and attract no CT deduction. The optimal extraction mix depends on the specific profit level, the director's personal tax position, and how much of the profit is needed immediately versus how much can be retained.
What the CT Certainty Means for Investment Decisions
The most immediate practical value of the rate confirmation is for businesses considering significant capital investment — a new premises, a fleet of vehicles, a major technology upgrade, or the acquisition of another business.
Investment decisions that involve multi-year payback periods are extremely sensitive to tax rate assumptions. A manufacturing business modelling the return on a £500,000 production line investment needs to know what Corporation Tax it will pay on the incremental profit the investment generates over five to ten years. With the 25% cap confirmed for this parliament, that modelling is more reliable today than it was before August 2026.
The same applies to mergers and acquisitions. Directors considering whether to buy a competitor or supplier business, and how to structure the transaction, can now build tax assumptions into their financial models with more confidence.
The Autumn Budget: What Might Still Change
The rate confirmation does not mean the 28 October Budget holds no Corporation Tax surprises. Several areas fall outside the scope of the rate commitment.
The R&D credit rate and conditions are not covered by the rate cap. A reduction in the RDEC credit from 20% to a lower figure is theoretically possible.
The loss relief rules, group relief provisions, and close company rules are all within scope for reform. Changes to any of these could affect the net tax position of business groups or investment companies without touching the headline rate.
Interest deductibility rules — under HMRC's Corporate Interest Restriction regime — have been the subject of ongoing consultation. Tightening these rules would increase the taxable profits of businesses with significant debt financing without changing the headline rate.
CoreAcc Accountants will publish a full Budget analysis covering all Corporation Tax measures announced on 28 October 2026 as soon as the Chancellor completes his statement.
Want to review your company's Corporation Tax position and plan your profit extraction strategy for 2026/27? Contact CoreAcc Accountants today.
CoreAcc Accountants is an ACCA-accredited firm of Chartered Certified Accountants. This article was published on 19 August 2026 and reflects legislation in force at that date. It does not constitute professional tax advice. Always seek specific advice for your individual circumstances.
