1. What is Corporation Tax?
Corporation tax is a tax that limited companies and some other organisations must pay on their taxable profits. Profits include trading income, investments, and chargeable gains (the sale of assets like property or shares).
In the UK, corporation tax is managed by HMRC and must be filed using a Company Tax Return (CT600).
2. Corporation Tax Rates in 2025 (UK)
As of April 2023 (and continuing in 2025):
- 19% – Profits up to £50,000.
- 25% – Profits over £250,000.
- Marginal Relief (between £50,001–£250,000): Gradually increases tax rate from 19% up to 25%.
This means small businesses with lower profits still benefit from a reduced rate.
3. Corporation Tax Calculator Formula
To estimate corporation tax:
Step 1: Calculate Taxable Profits
Taxable Profits = Total Revenue – Allowable Expenses – Reliefs – Capital Allowances.
Step 2: Apply the Rate
- If profit ≤ £50,000 → 19% tax.
- If profit ≥ £250,000 → 25% tax.
- If profit is between £50,001–£250,000 → use Marginal Relief Formula:
Marginal Relief = (Upper Limit – Profits) × (Main Rate – Small Rate) ÷ Profits.
4. Example Calculations
Example 1: Small Business (Profit £40,000)
- Tax Rate = 19%
- Corporation Tax = £40,000 × 19% = £7,600.
Example 2: Medium Business (Profit £120,000)
- Profits fall between £50,001–£250,000 → Marginal Relief applies.
- Corporation Tax = Effective rate ~ 22.75% (approx).
- Corporation Tax ≈ £27,300.
Example 3: Large Business (Profit £400,000)
- Tax Rate = 25%
- Corporation Tax = £400,000 × 25% = £100,000.
5. Corporation Tax Calculator (Quick Reference 2025)
| Profit Range | Rate | Example Tax Owed |
|---|---|---|
| £0 – £50,000 | 19% | £9,500 on £50k profit |
| £50,001 – £250,000 | 19–25% (sliding) | £27,300 on £120k profit |
| £250,001 and above | 25% | £75,000 on £300k profit |
6. Allowable Expenses (Can Reduce Tax)
- Staff wages and pensions.
- Office rent, utilities, and supplies.
- Business travel and mileage.
- Marketing and advertising.
- Professional fees (accountants, legal).
- Equipment and machinery (capital allowances).
7. Deadlines for Corporation Tax
- Filing: Company Tax Return (CT600) due 12 months after year-end.
- Payment: Corporation tax due 9 months and 1 day after end of accounting period.
8. How to Reduce Corporation Tax Legally
- Claim R&D tax credits if eligible.
- Pay directors via a salary + dividends structure.
- Invest in equipment and claim capital allowances.
- Make pension contributions.
- Claim all legitimate business expenses.
Frequently Asked Questions
Q1: Do all businesses pay corporation tax?
No, only limited companies, not sole traders or partnerships.
Q2: Is corporation tax the same in the UK and EU?
No, rates differ by country. The UK rate is currently 19–25%.
Q3: How do I pay corporation tax?
Directly to HMRC, usually via bank transfer, online banking, or company debit card.
Q4: Can I reduce corporation tax?
Yes, through allowable expenses, reliefs, and smart tax planning.
Q5: What happens if I miss the deadline?
HMRC charges penalties and interest for late filing or payment.
Q6: Do startups have to pay corporation tax?
Yes, as soon as they make a profit. Even if dormant, companies must notify HMRC.
Conclusion
A corporation tax calculator helps estimate tax liabilities quickly, but businesses should also claim expenses, reliefs, and allowances to reduce costs. In 2025, rates vary from 19% to 25%, making tax planning essential for startups and established companies alike.