From April 2017 to March 2023, the UK corporation tax rate was a flat 19% on all profits, regardless of size. From 1 April 2023, the UK has operated a two-tier system: a 25% main rate on profits above £250,000, a 19% small profits rate on profits up to £50,000, and a marginal relief band between the two producing an effective rate of approximately 26.5% on each pound of profit between £50,000 and £250,000. The £50,000 and £250,000 thresholds are divided by the number of associated companies.
This is the year-by-year story of how the new regime has played out across our SME client base, and the planning lessons that have emerged from each tax year.
2022-23 — the last year of flat 19%
The final year of the flat 19% rate was lived through the volatility of the September 2022 Mini-Budget, which briefly cancelled the planned 25% rise before reinstating it in October. For owner-managed business clients with year-ends straddling 1 April 2023, the period apportionment between the old and new regimes became a significant practical issue for the first time. Companies with March year-ends fell entirely into the old regime. Companies with April or later year-ends produced returns split between the 19% rate and the new regime.
The associated companies rules — dormant since the 2015 single-rate consolidation — required immediate revival. Our annual accounts team built associated company questionnaires into every year-end engagement from late 2022 onward.
2023-24 — the first full year of the new regime
For most clients, the 2023 December and 2024 March year-ends produced the first full-year returns under the new regime. The practical issues that had been forecast in spring 2023 became real: associated companies dragging trading companies into the marginal band, augmented profits including non-group dividends pushing companies above the £250,000 threshold, accounting period length adjustments where periods were shorter or longer than twelve months.
The interaction with full expensing — introduced from 1 April 2023 and made permanent in November 2023 — produced clean 25% effective relief on qualifying new plant and machinery for companies above £250,000 of profit, and slightly lower effective relief for companies in the marginal band. The combined model became the new baseline for capital expenditure planning across our manufacturing, logistics, and IT-intensive client base.
2024-25 — embedding and refinement
The 2024-25 tax year was the second full year of the new regime and produced fewer surprises in technical application. The dominant theme was refinement of planning tools that had been built during the transition. Pension contributions returned as a corporation tax planning lever for owner-managed companies in the marginal band — the increased £60,000 annual allowance from April 2023 meant that an employer pension contribution of up to £60,000 could move taxable profit out of the 26.5% effective band, producing a real cash saving.
The merged R&D scheme took effect for accounting periods beginning on or after 1 April 2024. The first full year of operation produced the first complete-period claims under the new methodology. Our corporate tax team rebuilt claim documentation for every R&D-active client during the period.
2025-26 — the third full year
The 2025-26 tax year added the employer NIC increase to 15%, the secondary threshold drop to £5,000, the BADR rate rise to 14%, the FHL abolition, and the non-dom replacement to the corporation tax planning context. None of these is strictly a corporation tax measure, but each affects the overall picture of how an SME structures remuneration, exit, and asset holding. The decision over whether to retain profit in the company, draw it as dividends, or invest in pension was reweighted by the combined effect of the changes.
The R&D merged scheme entered its second full year. The Enhanced R&D Intensive Support regime — for loss-making companies with R&D representing at least 30% of total expenditure — continued to be the higher-relief route for genuinely intensive companies.
Planning levers that have worked across the period
Several planning levers have consistently delivered cash savings under the new regime. Pension contributions remain the most powerful, particularly for companies sitting in the marginal band. Full expensing produces clean and substantial relief on qualifying capital expenditure. Associated company reviews continue to catch out clients with dormant SPVs and recover meaningful sums by triggering strikes off. R&D claims under the merged scheme produce above-the-line credit at the headline 20% rate. Timing of profit recognition across accounting periods has become a more valuable lever than in the flat-rate era.
Several levers that previously delivered have weakened. The dividend allowance has effectively become rounding at £500. The CGT annual exempt amount at £3,000 no longer meaningfully shelters share-disposal gains for owner-managers. The BADR rate at 14%, rising to 18% from April 2026, no longer produces the clean 10% effective rate that anchored exit planning for years.
What is approaching from April 2026
The BADR rate rises to 18%, the BPR/APR cap at £1 million takes effect, the AIM share BPR rate falls to 50%, and the planning conversation around family-owned trading businesses enters a new phase. For owner-managers contemplating exit in the 2026-27 tax year and beyond, the cumulative effect of the BADR rises from 10% to 18% is a near doubling of the effective CGT rate on the first £1 million of qualifying disposal proceeds.
What we tell clients
The corporation tax system is now structurally more like the pre-2015 two-tier regime than the 2015-2023 flat-rate regime. Year-end timing, associated companies, augmented profits, and pension contributions matter more than they did under the flat 19%. The dominant question in our year-end engagements has moved from "what is my taxable profit?" to "where in the marginal band am I sitting and what can I do about it?"
If you would like a year-end corporate tax review tailored to your own position in the marginal band, book a planning call with our team.