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Tax and cash
Corporation tax: the rate, the date, and the year it doubles up
Most owners know roughly what their corporation tax bill will be. Fewer know the rate on their next pound of profit, the day the bill falls due, or the year growth makes two bills land in one summer.
Corporation tax tends to get one conversation a year, when the accounts are signed. By then the profit has been made and the cash has usually been spent. The three things below are worth knowing months earlier, because each one changes how much cash you need and when.
The rate on your next pound of profit
The small profits rate is 19% on profits up to £50,000. The main rate is 25% on profits of £250,000 and above. In between, marginal relief tapers the rate from one to the other.
The effect of the taper is that every extra pound of profit between £50,000 and £250,000 is taxed at 26.5%, more than the headline rate.
| Amount | |
|---|---|
| Tax on £50,000 of profit, at 19% | £9,500 |
| Tax on £250,000 of profit, at 25% | £62,500 |
| Extra tax on the £200,000 in between | £53,000 |
| Rate on that £200,000 | 26.5% |
If your profit sits in that band and you set aside 25% on the next contract, you are short by 1.5 points on every pound of it. The thresholds are also divided between associated companies, so a group of two companies hits the main rate at half the profit.
The date it falls due
For most companies, corporation tax is paid nine months and one day after the year end. The return is due three months after that, which is why many owners think of the filing date as the deadline. The payment comes first.
With a 31 December year end, the tax for 2026 is due on 1 October 2027. Paid late, HMRC charges interest at the Bank of England base rate plus four points, currently 7.75% a year. On a £200,000 bill that is about £3,875 for three months.
The ten minute version
Take your profit for the year to date, add a sensible estimate for the rest of the year, and work out the tax using the rates above. Put the payment date and amount into your cash forecast now.
If you move the tax into a separate account each month, the bill is never a surprise. For a £120,000 tax bill that is £10,000 a month.
The year it doubles up
Once taxable profits pass £1.5m, a company stops paying once, nine months after the year end, and starts paying in four quarterly instalments during the year itself. There is one year’s grace: a company is not caught in its first year over £1.5m if the year before was under it.
The grace year is the trap. In the following year, last year’s tax is still paid on the old timetable while this year’s instalments start, and the two overlap.
An illustration, not a client. Profits of £1.4m, then £1.6m, then £1.8m, with a December year end. 2026 is the grace year. 2027 is the first instalment year, with tax of £450,000 paid in four parts of £112,500.
| Date | Payment |
|---|---|
| 14 July 2027, first instalment for 2027 | £112,500 |
| 1 October 2027, tax for 2026 | £400,000 |
| 14 October 2027, second instalment for 2027 | £112,500 |
| Paid in thirteen weeks | £625,000 |
Nothing about that is unusual or unfair. It is simply a year’s worth of extra tax brought forward, and it is visible on the calendar more than a year before it lands.
What to do with this
- Know your marginal rate. If profits sit between £50,000 and £250,000, use 26.5% for the next pound, not 25%.
- Put the payment date in the forecast. Nine months and one day after the year end, every year, with the amount next to it.
- Check the £1.5m line early. If profits are heading past it, map the instalment year out now, while there is still time to plan the cash.
Where the figures come from. Corporation tax rates, marginal relief, payment dates and quarterly instalment rules are from GOV.UK. HMRC late payment interest is the Bank of England base rate plus four points, 7.75% from 9 January 2026. The instalment example is illustrative and ignores associated companies and marginal relief, since all the profits shown are above £250,000.
The number that matters
The useful number is your bank balance less the tax you already owe and the tax building up on this year’s profit. That is the cash you can actually spend.
It is one line in a good set of management accounts, and it changes most months. If yours doesn’t show it, it is worth asking why.
AI Accounts provides accountancy, finance operations and fractional CFO support to owner-managed UK businesses turning over £1m to £15m.
Related reading: the VAT in your bank account was never yours, and profit, the bank balance and what you can afford.
If you want a view of where your cash actually sits, the Cash Visibility Score takes a few minutes.
A Cash Visibility Sprint gives you your available cash after tax set-aside in four weeks, alongside your current accountant. Book a 20 minute suitability call.
