1. What Is Corporation Tax?
Corporation tax is a tax paid by UK limited companies on their taxable profits. This includes profits from trading, investments, and the sale of assets.
2. Who Pays Corporation Tax?
- UK-based limited companies.
- Foreign companies with a UK branch or office.
- Certain unincorporated associations (e.g., clubs, societies).
3. Corporation Tax Rates in the UK (2025)
From April 2023 onwards, the UK uses a tiered system:
- 19% – for profits up to £50,000.
- 25% – for profits over £250,000.
- Marginal Relief – for profits between £50,001 and £250,000, creating a gradual increase in the rate.
4. Steps to Calculate Corporation Tax
Step 1: Work Out Your Accounting Period
This is usually 12 months and aligns with your company’s financial year.
Step 2: Calculate Taxable Profits
Taxable profits = (Total business income + gains from selling assets) – (allowable expenses + tax reliefs).
Step 3: Apply the Correct Rate
- If profits ≤ £50,000 → Apply 19%.
- If profits ≥ £250,000 → Apply 25%.
- If between, use the marginal relief formula:
Marginal Relief = (Upper limit – Profits) × (Main rate – Small profits rate) ÷ Profits.
Step 4: Deduct Any Reliefs
- Research & Development (R&D) tax credits.
- Capital allowances on equipment.
- Loss relief from previous years.
Step 5: Final Tax Calculation Example
Example:
- Profit: £100,000.
- Marginal Relief:
(250,000 – 100,000) × (0.25 – 0.19) ÷ 100,000
= 150,000 × 0.06 ÷ 100,000
= 9,000 ÷ 100,000
= 0.09 (or 9%).
Main tax = £100,000 × 25% = £25,000.
Relief = £100,000 × 9% = £9,000.
Final corporation tax = £25,000 – £9,000 = £16,000.
5. Key Deadlines
- File Corporation Tax Return (CT600): Within 12 months of your accounting period end.
- Pay Corporation Tax: Within 9 months and 1 day after the accounting period end.
6. Common Mistakes to Avoid
- Missing allowable expenses (overpaying tax).
- Confusing accounting profit with taxable profit.
- Filing late, which can lead to penalties.
Frequently Asked Questions
Q1: Do I pay corporation tax on all income?
Yes, on all taxable profits, including investments and asset sales.
Q2: Can I reduce corporation tax legally?
Yes, by claiming allowable expenses, reliefs, and capital allowances.
Q3: Is corporation tax paid monthly or yearly?
Most companies pay annually; very large companies may pay quarterly instalments.
Q4: Do I need an accountant to calculate corporation tax?
Not legally, but it’s recommended to ensure accuracy and maximise reliefs.
Q5: Is VAT included in corporation tax calculations?
No, VAT is a separate tax.
Q6: What happens if I make a loss?
You may carry the loss forward or back to offset against profits in other periods.
Conclusion
Calculating corporation tax in 2025 involves understanding the UK’s tiered rates, applying reliefs, and accurately determining taxable profits. With careful record-keeping and planning, you can minimise your tax bill and avoid penalties.