1. What Is Corporation Tax?
Corporation tax is a tax on the taxable profits of limited companies and certain other organisations operating in the UK. It applies to profits from:
- Trading activities
- Investments
- Capital gains (selling assets for profit)
2. Who Pays Corporation Tax?
- UK-based limited companies (Ltd)
- Foreign companies with UK branches
- Some clubs, co-operatives, and associations
Sole traders and partnerships do not pay corporation tax—they pay income tax through Self Assessment instead.
3. Corporation Tax Rates (2025)
As of 2025:
- 19% for companies with profits up to £50,000
- 25% for profits over £250,000
- A marginal relief applies for profits between £50,001 and £250,000
4. Corporation Tax Liabilities: What’s Included
You must pay corporation tax on:
- Trading profits (sales income minus allowable expenses)
- Investment income (e.g., interest or dividends)
- Chargeable gains (profits from selling business assets)
5. How to Calculate Corporation Tax
Taxable Profit = Total Income – Allowable Business Expenses
Once you calculate taxable profit:
- Apply the correct tax rate (19%, 25%, or marginal relief)
- File a Company Tax Return (CT600) with HMRC
- Pay the tax due by your company’s deadline
6. Allowable Expenses
These reduce your taxable profit and include:
- Salaries and employer NI contributions
- Rent and utilities
- Office supplies and equipment
- Marketing and advertising
- Professional services (e.g., accountants, legal)
7. Deadlines and Payment
- Corporation tax must be paid 9 months and 1 day after the end of your accounting period.
- CT600 (tax return) must be filed within 12 months of the accounting period end.
- Large companies may need to pay in instalments.
8. How to Pay Corporation Tax
You can pay via:
- Online banking or CHAPS
- Debit/credit card online
- Direct Debit (one-off or recurring)
- BACS or at your bank
Always use your 17-character Corporation Tax reference number.
9. Penalties for Late Payment or Filing
- Late payment: Interest charged by HMRC
- Late filing: Penalties start at £100 and increase over time
- Incorrect returns: HMRC can impose additional penalties
10. Reducing Corporation Tax Liabilities
- Claim all allowable expenses
- Invest in qualifying equipment or R&D
- Use capital allowances
- Consider salary vs dividends for directors
- Carry forward trading losses to offset future profits
Frequently Asked Questions
Do I need to pay corporation tax if my company made no profit?
No tax is due, but you must still file a tax return to declare zero profits.
Can I reduce my corporation tax bill legally?
Yes—through allowable deductions, capital allowances, and R&D tax reliefs.
How do I register for corporation tax?
Register with HMRC within 3 months of starting to trade as a limited company.
What happens if I miss my corporation tax deadline?
You’ll be charged interest and may face penalties from HMRC.
Can I carry losses forward to reduce future tax?
Yes. Trading losses can be carried forward and offset against future profits.
Do dividends affect corporation tax?
No. Dividends are paid from post-tax profits, so they don’t reduce your tax liability.
Conclusion
Understanding your corporation tax liabilities is crucial for compliance and effective business planning. By knowing what profits are taxed, how to reduce liabilities, and staying on top of deadlines, your business stays financially healthy and HMRC-compliant.