Category: Business Services

As we move into 2026, understanding the impact of corporation tax for business services providers is crucial. For businesses offering services such as consulting, IT services, marketing, and facility management, corporation tax rates can significantly affect financial planning and growth strategies. 

In this article, we’ll break down the key tax rates and explain how they apply to service businesses in the UK, providing insights into planning and compliance strategies.

Corporation Tax Rates For Service Businesses in 2026

In 2026, the UK’s corporation tax system will continue to operate under the following rates, effective from 1 April 2025:

• Main Corporation Tax Rate: 25% for companies with taxable profits exceeding £250,000.
  
• Small Profits Rate: 19% for companies with profits of £50,000 or less.
  
• Marginal Relief: A gradual transition between the two rates applies for companies with profits between £50,000 and £250,000.
  

These rates will remain unchanged for the financial year starting 1 April 2026. However, it’s important for business owners to be aware of how these thresholds can impact their tax liabilities and planning decisions.

Key Points to Remember:

• Profits up to £50,000 are taxed at 19%.
  
• Profits over £250,000 are taxed at 25%.
  
• For profits between £50,000 and £250,000, a marginal relief applies to reduce the effective tax rate between 19% and 25%.
  

These thresholds and corporation tax rates for service businesses affect how providers calculate their tax liability and how they should plan for tax payments, investment, and growth strategies.

Why These Rates Matter for Business Services Providers

If you’re running a business in the service sector, whether you’re offering consulting, IT services, or facility management, these corporation tax rates directly impact your financials. Here’s why:

Taxable Profits For Business Services Providers: 

Taxable profits for business services providers are calculated by deducting allowable business expenses from your total income. This includes costs such as staff wages, office supplies, marketing expenses, and any other legitimate business costs.

Profit Growth Considerations For Businesses: 

Many service-based businesses don’t have large upfront capital investments, unlike manufacturing firms. This means that most service firms, especially small or start-up companies, are more likely to benefit from the small profit rate if their profits stay below £50,000.

Service Firms Profit Margins: 

Service firms often operate with higher margins, meaning that once you start scaling, crossing the £50,000 threshold can push your tax rate into the marginal relief zone. This is where tax planning becomes crucial to minimise the effective rate and ensure you’re making the most of the available tax reliefs.

Common Scenarios and What to Watch

Below are some typical scenarios and tax considerations for service businesses in the UK:

1. Start-up Service Firms
   
   • Profits remain below £50,000: You will be taxed at the 19% small profits rate.
     
   • Strategy: Keep a close eye on profit levels, as even small increases could push your business into the marginal relief range.
     
2. Growing Firms
   
   • Profits increase between £50,000 and £250,000: Marginal relief applies, which results in an effective tax rate between 19% and 25%.
     
   • Strategy: As your company approaches the £50,000 threshold, it’s essential to start planning for potential tax increases and explore how marginal relief can benefit you.
     
3. Established Providers
   
   • Profits exceed £250,000: You will be taxed at the full 25% rate.
     
   • Strategy: At this level, aggressive tax planning may be needed to mitigate the tax burden, including investing in capital allowances or considering profit-shifting strategies.
     
4. Group/Associated Companies
   
   • If you operate multiple service lines under separate companies or as part of a larger group, the £50,000 and £250,000 profit thresholds may be split between entities.
     
   • Strategy: Review your group structure and ensure you’re maximising tax efficiency across companies.
     
5. Accounting-Period Mismatch
   
   • If your accounting period doesn’t align exactly with the tax year, different rates may apply during the year.
     
   • Strategy: Ensure your tax advisors are aware of any mismatches to avoid miscalculating your corporation tax.

Strategic Considerations for Service Businesses

To manage your corporation tax obligations effectively, consider the following strategies:

• Review Your Company Structure:

If you operate multiple service lines under separate entities, it may be beneficial to keep each entity’s profits below the £50,000 threshold to benefit from the 19% tax rate.

• Track Profit Growth Carefully:

Monitor your company’s financial performance to anticipate when your profits might exceed £50,000. The marginal relief is essential for optimising the tax rate for businesses with profits between £50,000 and £250,000.

• Plan Expenses and Investment:

Service businesses can reduce taxable profits by investing in allowable expenses. For example, paying for employee training, upgrading IT infrastructure, or investing in energy-efficient equipment can help lower your profit before tax.

• Keep Clear Records of Associated Companies:

If you have multiple companies in a group, it’s crucial to track their relationships and profits carefully. The thresholds for the small profits rate and main rate can be divided among associated companies.

• Invest in Tangible Assets (if applicable):

Service companies with significant capital expenditure (e.g., buying property or expensive equipment) should explore allowances, such as capital allowances, that may reduce taxable profits.

How We Help With Corporation Tax For Business Services Providers in 2026

At Apex Accountants, we provide comprehensive services to help business services providers navigate corporation tax:

• Tax-Planning Advice: We can guide you on how to structure your company to minimise tax and maximise growth opportunities.
  
• Profit Forecasting: We help you forecast profits and identify when you may cross thresholds (£50k/£250k), ensuring proactive tax management.
  
• Preparation and Filing of Tax Returns: Our team offers complete service for preparing and filing corporation tax returns (CT600) and computations.
  
• Review of Associated Company Status: Our team assesses your company group structure and how the thresholds for corporation tax rates apply.
  
• Ongoing Compliance Monitoring: As your business grows, we’ll monitor your tax status to keep you compliant with changing regulations.
  

Conclusion

Corporation tax in 2026 will continue to operate with a 19% rate for profits up to £50,000 and 25% for profits exceeding £250,000. For service businesses, understanding where your profits fall within these thresholds is essential to managing your tax efficiently. With careful tax planning and timely action, you can reduce your tax burden and optimise growth.

Let Apex Accountants assist you with tailored tax strategies that align with your business goals. Contact us today to discuss your corporation tax position.

Frequently Asked Questions (FAQs)

What is the corporation tax rate for companies with profits under £50,000?

The corporation tax rate for companies with profits under £50,000 is 19%. This rate applies to small firms or start-ups with lower profit margins, offering a more tax-friendly environment for growth.

What rate applies if profits are over £250,000?

If your company’s profits exceed £250,000, the corporation tax rate is 25%. This is the main rate applicable to larger businesses, impacting firms with significant profit generation.

How does marginal relief work?

Marginal relief applies to companies with profits between £50,000 and £250,000, gradually reducing the effective tax rate from 25% to 19%. This helps businesses avoid a sharp tax increase when their profits rise.

Does the rate change in April 2026?

There are no announced changes to corporation tax rates in April 2026. The existing rates of 19% for small profits and 25% for profits over £250,000 will remain in place.

What counts as taxable profits for a service firm?

For service businesses, taxable profits include income from services, investment income, and chargeable gains, after subtracting allowable expenses such as wages, office supplies, and other operating costs.

Are there different rules for manufacturing businesses?

While the basic corporation tax rate structure remains the same, manufacturing businesses may qualify for additional tax reliefs or allowances related to capital investment, unlike service businesses that typically have fewer capital expenses.

What if I have multiple companies in a group?

If you have multiple companies in a group, the small profits rate and main rate thresholds may be divided among them. This requires careful planning to ensure each company remains tax-efficient.

When must I file and pay corporation tax?

Corporation tax returns must be filed using the CT600 form within nine months and one day after your accounting period ends. Payment must be made by the same deadline to avoid penalties.

Can service-business firms invest to reduce taxable profits?

Yes, service firms can reduce taxable profits by making legitimate business investments and claiming allowable expenses. This includes items such as office upgrades, staff training, and equipment purchases that support business operations.

What are the risks of overlooking the thresholds?

Overlooking profit thresholds can result in paying more tax than necessary or missing out on marginal relief. It may also lead to penalties for inaccurate filings or misreporting profit levels, which could affect cash flow.