How to Pay Corporate Tax Step by Step in 2025


1. Introduction

If you run a company, paying taxes is one of your key legal responsibilities. In most countries, companies must pay corporate tax on their profits. Whether you’re a small business owner or managing a large firm, understanding corporate tax is essential to avoid penalties and maintain compliance.


2. What is Corporate Tax?

Corporate tax is a tax on company profits. It applies to:

  • Limited companies.
  • Foreign companies with a UK branch or office (for UK-specific rules).
  • Some unincorporated associations (e.g., clubs, co-operatives).

3. Who Needs to Pay Corporate Tax?

You must pay corporate tax if your company:

  • Is registered as a limited company.
  • Earns taxable profits (after deducting expenses).
  • Operates in the UK (or in other jurisdictions with similar tax systems).

4. What Counts as Taxable Profits?

Taxable profits include:

  • Trading profits (from business activities).
  • Investment income.
  • Chargeable gains (profits from selling assets like property or shares).

5. Corporate Tax Rates (UK Example, 2025)

  • 19% – for companies with profits under £50,000.
  • 25% – for companies with profits over £250,000.
  • Marginal relief applies between £50,000 and £250,000, creating a tapered rate.

(Rates vary internationally; always check your country’s tax authority.)


6. When Do You Pay Corporate Tax?

  • You must pay 9 months and 1 day after the end of your accounting period.
  • Large companies may need to pay in instalments.
  • Filing deadlines are separate from payment deadlines.

7. How to Pay Corporate Tax (UK Example)

Step 1: Register for Corporation Tax

  • Register with HMRC within 3 months of starting business.

Step 2: Prepare Your Company Accounts

  • Calculate revenue, expenses, and profits.
  • Deduct allowable expenses (e.g., salaries, rent, utilities).

Step 3: File a Company Tax Return (CT600)

  • Must be submitted online to HMRC.
  • Includes detailed profit, loss, and tax calculations.

Step 4: Pay Your Corporate Tax

Payment methods include:

  • Online banking.
  • Direct debit.
  • CHAPS or Bacs transfer.
  • Corporate credit/debit card (fees may apply).

8. Allowable Deductions to Reduce Corporate Tax

  • Staff salaries and benefits.
  • Business rent and utilities.
  • Marketing and advertising costs.
  • Professional fees (accountants, legal).
  • Equipment and technology expenses.

9. Consequences of Late Payment

  • Interest charges on late payments.
  • Penalties for missed filing deadlines.
  • Risk of HMRC investigations or audits.

10. Tips to Manage Corporate Tax Efficiently

  • Keep accurate financial records.
  • Use accounting software (Xero, QuickBooks, Sage).
  • Work with a tax advisor to optimise deductions.
  • Plan cash flow to ensure timely payments.

Frequently Asked Questions

1. Who pays corporate tax?
Limited companies and some organisations pay tax on their profits.

2. How do I pay corporate tax?
Register with HMRC (or your local tax authority), file a tax return, and pay online by the deadline.

3. Can I reduce my corporate tax bill?
Yes, through allowable deductions, R&D tax credits, and efficient expense management.

4. When is corporate tax due in the UK?
9 months and 1 day after your company’s accounting period ends.

5. Do small businesses pay corporate tax?
Yes, if they are registered as limited companies. Sole traders and partnerships pay income tax instead.

6. What happens if I don’t pay corporate tax?
You’ll face penalties, interest charges, and possible legal action.


Conclusion

Knowing how to pay corporate tax is essential for every company. From registering with HMRC and filing tax returns to making payments on time, compliance ensures your business avoids penalties and maintains financial stability. With careful planning and the right advice, you can also reduce your tax burden legally and invest more into business growth.

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