🧠 Calquify Intelligence
The UK's April 2023 increase from 19% to 25% was the largest single corporation tax increase in UK history — but marginal relief, Patent Box, and R&D credits mean many companies' effective rates are significantly below 25%
Chancellor Jeremy Hunt's April 2023 corporation tax increase from 19% to 25% — maintained by Chancellor Rachel Reeves in 2024-2026 — was the largest single-step CT increase in UK history, raising the headline rate by 6 percentage points. However, the effective rate for many companies is significantly below 25% due to: marginal relief keeping companies with £50k-£250k profits at blended 19-25%; Patent Box reducing IP income to 10%; R&D RDEC credit of 20% (net approximately 15% after tax on the credit) on qualifying R&D expenditure; Annual Investment Allowance of £1m providing 100% first-year deduction on capital investments. A UK tech company with £1m profit, £200k R&D spend, and £300k qualifying patent income might pay an effective rate of approximately 16-18% after reliefs.
Source: HMRC CT rates guidance; HM Treasury Autumn Budget 2025; KPMG UK tax guide 2025
The UK's R&D tax credit system was significantly reformed from April 2024 — merging SME and RDEC schemes — reducing the generosity for SMEs but simplifying the system and reducing fraud
Prior to April 2024, UK R&D tax credits operated two schemes: SME scheme (230% enhancement + potential cash repayment) and RDEC large company scheme (20% above-the-line credit). Widespread abuse — particularly fraudulent claims by tax credit 'advisers' charging contingency fees — led HMRC to estimate £1.13bn in fraudulent/error claims in 2021/22. From April 2024: a merged RDEC-style scheme applies to most companies (20% credit rate, taxable above the line → net approximately 15% after CT); R&D-intensive SMEs (qualifying R&D ≥30% of total expenditure) retain an enhanced 27% credit. The reform simplified the system but reduced generosity for most SMEs. HMRC estimates net annual cost of R&D reliefs approximately £7.5bn (2024/25) — the largest individual UK business tax relief by value.
Source: HMRC R&D tax relief statistics 2024; Finance Act 2024; ICAEW R&D reform guidance
Post-Brexit, the UK has significant regulatory freedom on corporate tax — and the government has signalled it will use this to compete with EU jurisdictions rather than harmonise — creating a medium-term risk of EU-UK corporate tax divergence
EU membership required the UK to observe EU State Aid rules (limiting unilateral tax subsidies to specific sectors/companies) and ECOFJ Code of Conduct (preventing harmful tax competition). Post-Brexit, the UK has more freedom to introduce sector-specific reliefs, negotiate bilateral tax treaties independently, and set CT rates without EU Code of Conduct constraints. However, the UK's OECD Pillar Two obligations (minimum 15% effective rate for MNEs >£750m revenue) constrain the floor. The current Labour government has committed to the 25% main rate for this Parliament — ruling out a return to 19%. The UK's strategic interest is arguably in keeping CT competitive with Ireland (12.5%), Netherlands (25.8%), and Germany (29.8%) — not in EU harmonisation. The medium-term risk: if EU moves toward harmonisation at higher rates (EU minimum CT directives), UK rates below EU minimum would create significant competitive advantage.
Source: HM Treasury UK international tax strategy; Labour manifesto commitments; EU BEFIT Directive proposals 2023
UK Corporation Tax — Effective Rate by Profit Level 2026 (%)
HMRC 2026
📋 Reference Data
UK Corporation Tax Rate — Marginal Relief Calculation 2026
HMRC + CTA 2010
| Annual Profit | CT Rate Applied | Marginal Relief | Tax Payable | Effective Rate | Notes |
|---|---|---|---|---|---|
| ≤ £50.000 | 19% | N/A | £9.500 | 19,0% | Small profits rate — full benefit |
| £100.000 | Mixed | Yes — partial | £21.500 | 21,5% | Marginal relief applies |
| £150.000 | Mixed | Yes — significant | £33.750 | 22,5% | Approaching main rate |
| £200.000 | Mixed | Yes — small | £46.500 | 23,3% | Near main rate threshold |
| £250.000 | 25% | N/A — threshold reached | £62.500 | 25,0% | Full main rate from here |
| £500.000 | 25% | N/A | £125.000 | 25,0% | Main rate |
| £1.000.000 | 25% | N/A | £250.000 | 25,0% | Main rate — Patent Box could reduce |
| £1.000.000 (with £300k Patent Box income) | Blended | N/A | £220.000 | 22,0% | 25% on £700k + 10% on £300k = £220k |
ⓘ Marginal relief formula: (£250,000 − profits) / £200,000 × 3/200 × profits (for associated companies calculation, divide thresholds by number of associated companies). The £50,000-£250,000 band creates a marginal CT rate of approximately 26.5% — higher than the main rate of 25% — which is counterintuitive but mathematically correct due to the relief withdrawal mechanics. Patent Box: qualifying IP income (from patents granted by UK IPO, EPO, or similar) is taxed at 10% — the saving versus main rate is 15% per £ of qualifying income.
UK R&D Tax Relief — Merged Scheme Summary 2025/26
HMRC CIRD manual + Finance Act 2024
| Scheme | Eligibility | Credit Rate | Net Benefit (approx) | Example (£100k R&D spend) | Notes |
|---|---|---|---|---|---|
| Merged RDEC scheme | Most companies — from April 2024 | 20% above-the-line credit | ~15% net after CT | £20.000 credit → ~£15.000 net | Credit is taxable → net value reduced by CT |
| R&D-intensive SME enhanced rate | SMEs with R&D ≥ 30% of total spend | 27% credit rate | ~20% net | £27.000 credit → ~£20.000 net | Higher rate for genuinely R&D-intensive SMEs |
| HMRC PAYE cap (anti-fraud) | All R&D claims | £20k + 300% of PAYE/NIC | Cap applies to cash repayments | Limits abuse by shell companies | Introduced 2021; strengthened 2023 |
| Cloud computing / data costs | Included from April 2023 | 20% (merged) | ~15% net | Qualifying data and cloud costs | Significant expansion for tech/AI companies |
| Subcontractor R&D costs | 65% qualifying rate | 20% on 65% | ~9.8% net | £65k of £100k sub spend qualifies | Excludes connected-party subcontractors at >65% |
ⓘ The R&D Merged Scheme replaced the separate SME and RDEC schemes from April 2024. The 20% credit is an 'above the line' credit — it reduces the R&D cost line in the P&L before CT is calculated. After CT at 25%, the net benefit is approximately 15% of qualifying R&D expenditure. For an SME spending £500,000/year on qualifying R&D: gross credit £100,000; CT on credit £25,000; net cash benefit approximately £75,000. HMRC's annual R&D relief cost is approximately £7.5bn — a major economic policy tool.
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🔬 Methodology & Sources
UK Corporation Tax
UK corporation tax (CT) uses a two-rate system since April 2023. Small profits rate (19%) for profits ≤£50,000; main rate (25%) for profits ≥£250,000; marginal relief applies in between on a sliding scale. The Patent Box reduces the effective CT rate on qualifying patent income to 10%. R&D Tax Credits significantly reduce effective rates for qualifying R&D companies. All figures GBP, en-GB locale.
Formula
CT = profits × rate | Marginal_relief = (250000 - profits) / 200000 × 3/200 × profits | Patent_Box_saving = (main_rate - 10%) × qualifying_IP_income
CitationCTA 2010; Finance Act 2023 (CT rate change); HMRC CIRD manual; Patent Box — ITTOIA 2005.
❓ Frequently Asked Questions
UK corporation tax uses two rates: 19% (small profits rate) for annual profits of £50,000 or less; 25% (main rate) for profits of £250,000 or more. For profits between £50,001 and £249,999, marginal relief applies on a sliding scale, producing an effective rate between 19% and 25%. The thresholds are divided by the number of associated companies in the group. For most profitable companies above £250,000, the rate is 25%. The Patent Box reduces qualifying patent income to 10%; R&D credits can significantly reduce effective rates.
The UK Patent Box allows companies to apply a 10% corporation tax rate to profits attributable to qualifying patented inventions (and some other qualifying IP). To qualify: the company must own or exclusively license qualifying patents (granted by UKIPO, EPO, or selected national offices); the company or a group company must have performed significant R&D that contributed to the patent. The saving is 15 pence per £1 of qualifying Patent Box income versus the main 25% rate. Large pharma, aerospace, and specialised tech companies benefit most. Patent Box claims must use a streaming or standard calculation methodology — detailed rules in HMRC CIRD manual.
From April 2024, most UK companies use the merged RDEC scheme — a 20% above-the-line credit on qualifying R&D expenditure. The credit reduces the P&L R&D cost; after CT at 25%, the net benefit is approximately 15% of qualifying spend. R&D-intensive SMEs (qualifying R&D ≥30% of total expenditure) receive a 27% credit rate (net approximately 20%). Qualifying costs: staff wages on R&D, subcontractor costs (65%), consumables, cloud computing, data costs (from April 2023). HMRC fraud controls: PAYE cap limits repayable credits; advance approval required for first-time claimants from April 2023.
Yes — the UK implemented the OECD Pillar Two global minimum tax (15% effective rate for MNE groups with >€750m consolidated revenues) for accounting periods beginning on or after 31 December 2023. The UK applies both the Qualified Domestic Minimum Top-up Tax (QDMTT) and an Income Inclusion Rule (IIR). For most UK operating companies, the standard 25% CT rate comfortably exceeds 15%. Companies with significant R&D credits or Patent Box income reducing their effective rate below 15% must check their Pillar Two position. HMRC estimates approximately 200 UK MNE groups are within scope.
Ireland's standard corporation tax rate (12.5%) is significantly lower than UK (25%). For a company with €1m profit: Ireland CT €125,000; UK CT £250,000. This rate differential has historically made Ireland the preferred EU location for US tech and pharma companies. Post-Brexit, the UK can no longer use EU single market access as an attraction alongside lower tax than Ireland — they are now competing directly. The UK's advantages over Ireland: larger domestic market (67m vs 5m population); deeper capital markets; more diversified professional services ecosystem; stronger graduate talent pool. Ireland's advantages: 12.5% rate; EU membership (single market access, GDPR one-stop-shop); Knowledge Development Box (6.25% for IP income); established US tech/pharma cluster.
Sources & References
Data sourced from official institutional publications. Results are for informational purposes only. Last reviewed Jan 2026.
Data Disclaimer
UK corporation tax information is indicative. Always consult a qualified UK tax advisor or chartered accountant. HMRC rules change with each Budget.
UK corporation tax information is indicative. Always consult a qualified UK tax advisor or chartered accountant. HMRC rules change with each Budget.