Corporation tax rates are set by financial year, not by your company’s own accounting date. Here is when that mismatch actually changes your numbers, and when it does not.
Zazentax Corporation Tax Series · Updated July 2026 · Reading time: about 6 minutes
Corporation tax rates and thresholds are set for each financial year, usually shortened to FY, which runs from 1 April to 31 March and is named after the calendar year in which it begins; FY2026, for example, runs from 1 April 2026 to 31 March 2027. Most companies do not draw up accounts to 31 March, however, so a company’s accounting period frequently straddles the boundary between one financial year and the next. Two separate questions then arise, and they are often confused with one another: does the rate calculation need to be split across the two financial years, and does the length of the accounting period itself change the thresholds being used. The answers are genuinely different, and both matter.
When a Financial Year Straddle Actually Requires Splitting
Splitting a computation across two financial years is only necessary where the rates or thresholds actually differ between them. Where they are identical, a straddling accounting period is simply taxed as one calculation using the single set of figures, with no apportionment at all.
This matters practically because the corporation tax rates, the £50,000 and £250,000 thresholds, and the 3 divided by 200 marginal relief fraction have all been unchanged since the financial year beginning 1 April 2023, and remain unchanged through FY2026. Consequently, an accounting period straddling 1 April in any recent year, including the current one, is taxed as a single calculation, with no need to divide it into notional periods at all. This was not always so; accounting periods straddling 1 April 2023 itself did require splitting, because the small profits rate and marginal relief were newly introduced from that date and the immediately preceding year operated under a single flat rate. That historical boundary is the one case in living memory where the mechanism genuinely mattered, and it is worth understanding for that reason: if a future Budget ever changes the rates again, the same splitting exercise would immediately become necessary for any accounting period straddling the change.
Key point: Do not assume every 1 April crossing requires a split calculation. Check first whether the rates and thresholds for the two financial years concerned are actually different. If they are the same, as they currently are, one calculation covers the whole period.
When the Length of the Period Changes the Thresholds Anyway
A separate rule applies regardless of any financial year straddle. The £50,000 and £250,000 thresholds are built around a full twelve month accounting period. Where a company’s accounting period is shorter than twelve months, both thresholds must be time apportioned down to match, whatever financial year or years the period falls into.
Pemberton Design Ltd changes its year end and prepares accounts for the eight months to 31 August 2026. This period runs from 1 January 2026 to 31 August 2026, so it straddles 1 April 2026 and therefore falls across two financial years. Because rates and thresholds have not changed between them, no splitting between financial years is required. However, the period itself is only eight months long, so the thresholds must be scaled down to match: the upper limit becomes £250,000 multiplied by 8 divided by 12, which is approximately £166,667, and the lower limit becomes £50,000 multiplied by 8 divided by 12, which is approximately £33,333.
Pemberton Design Ltd has taxable total profits, usually shortened to TTP, of £120,000 for this period, plus an £8,000 dividend received from an unconnected company, giving augmented profits of £128,000. Since £128,000 sits between the time apportioned limits of roughly £33,333 and £166,667, marginal relief applies. Corporation tax on the £120,000 TTP at the main rate is £120,000 multiplied by 25%, which equals £30,000. Marginal relief is then 3 divided by 200, multiplied by £166,667 minus £128,000, which is approximately £38,667, multiplied by £120,000 divided by £128,000. That gives a relief of approximately £544, leaving a final liability of £30,000 minus £544, which equals roughly £29,456.
Action required: Any time your company shortens its accounting period, whether by choice or because of incorporation, cessation, or a change of year end, recalculate the £50,000 and £250,000 thresholds for the actual length of that period before applying marginal relief. Using the full twelve month figures on a shorter period understates the tax due.
Putting the Two Rules Together
The practical checklist for any accounting period is therefore twofold. First, identify which financial year or years the period falls into, and check whether the rates and thresholds genuinely differ between them; if they do not, as has been the case throughout FY2023 to FY2026, treat the whole period as one calculation. Second, regardless of the answer to that first question, check the length of the period itself; anything shorter than twelve months needs its thresholds time apportioned down, even if the entire period sits inside a single financial year.
Key Takeaways
- Financial years run 1 April to 31 March and are named after the calendar year in which they begin.
- A straddling accounting period only needs splitting between financial years where the rates or thresholds genuinely differ; rates and thresholds have been identical since FY2023 through FY2026.
- Accounting periods shorter than twelve months always need the £50,000 and £250,000 thresholds time apportioned to the period’s actual length, regardless of any financial year straddle.
- Both rules can apply to the same period independently: a short period that also straddles two financial years may need the thresholds apportioned for length, but not split by financial year, exactly as shown above.
- If rates ever change again, the financial year splitting mechanism becomes immediately relevant for any period straddling that change.
Changed Your Company’s Accounting Date or Shortened a Period This Year?
Zazentax checks which financial years your period covers, apportions the thresholds to its actual length, and confirms whether marginal relief applies before the return is filed.
