If you’re looking for a simple guide to Corporation Tax, you’ve come to the right place. Below, we break down some of the key points you need to know about Corporation Tax – from what it is to how it’s calculated, when it’s due and what you can do to legally reduce the amount you pay to HMRC.
What is Corporation Tax?
Corporation Tax is a company tax which is applied to trading profits of all UK limited companies. Every company is automatically registered for Corporation Tax within 6 weeks of incorporation. Once you have registered, HMRC will send your company unique tax reference (UTR) number through the post, and you will need this when corresponding with HMRC, and also when you file and make payment for your CT each year.
As part of your year end accounts preparation, your company income, or turnover amount for the year will be reduced by any tax allowable expenditure you have put through your company, subject to any adjustments to profits, and what is left is your profit figure on which Corporation Tax will be calculated.
Tax deductible expenses include your salary, as this is a cost to your company, but not dividends, as these are paid after Corporation Tax has been calculated.
Contractors working via their own limited companies will need to pay Corporation Tax on their trading profits every year, along with profit made on investments or by selling assets – like technology, software, property or shares.
Since 1 April 2023, the main rate of Corporation Tax has been 25% for profits above £250,000, with a small profits rate of 19% for profits up to £50,000 and marginal relief applied on profits between the two to effectively taper the rate payable.
What is the Corporation Tax rate?
From April 2023, HMRC introduced a variable rate of Corporation Tax.
- Profits up to £50,000 – 19%
- Profits over £250,000 – 25%
- If profits are between £50,000 – £250,000, the corporation tax rate would be 25%. It could however be reduced through marginal relief.
Marginal Relief provides a gradual increase in Corporation Tax rate between the small profits rate and the main rate allowing you to reduce your rate from the 25% main rate. Corporation Tax will still be payable at 19% for any companies with profits of £50,000 or less and between the two thresholds (profits of £50,001 and £249,999) a marginal rate of Corporation Tax will apply at 26.5%
Who can claim marginal relief?
- Marginal relief can be claimed if your profits are between £50,000 – £250,000.
- If an accounting period is less than 12 months long, the limits are reduced.
- The limits are also proportionately reduced by the number of associated companies your company has.
Who cannot claim marginal relief?
- You’re a non-UK resident company.
- You’re a close investment holding company.
- Your profits go over £250,000.
Corporation Tax – Allowable Expenses
When working out your profits and therefore Corporation Tax, several allowable business expenses should be taken into account. These include:
- Salary
- Pension contributions
- Mileage
- Travel
- Subsistence
- Accounting fees
- Business insurance
There are lots of other legitimate business expenses, which will offset your Corporation Tax bill. You’ll find more details in our guide to contractor expenses.
Corporation Tax relief
Depending on your line of work, you might also find that your business is eligible for certain Corporation Tax reliefs. This could include:
- R&D tax credits: a government incentive to reward UK businesses for investing in innovative products and services
- Capital Allowances: tax relief on the purchase of assets such as equipment, machinery and business vehicles, which will be kept in the business
Company profit or loss
If you make a profit in your company in a year, then you will have CT to pay, but if you make a loss, not only do you not have CT to pay, but you may also be able to offset the loss against previous or future profits.
When is Corporation Tax due?
There are two deadlines to be aware of:
- Corporation Tax filing: to be filed 12 months after the end of the accounting period it covers. So if your company year ends on 31 March 2026, your CT return needs filing with HMRC by 31 March 2027.
- Corporation Tax bill: to be paid typically 9 months and 1 day after the end of your accounting period. So with the same company year end of 31 March 2026, your CT liability for that period will be due for payment to HMRC by 1 January 2027.
Your accounting period tends to be the same as your company’s financial year, but if you are not sure, you can ask your accountant or check the Companies House register.
How to pay Corporation Tax
How you pay Corporation Tax might depend on how quickly you’d like to make the payment:
- Same day or next day: online through your bank, online or over the phone by Faster Payments or CHAPS, online with a or debit or corporate credit card, paying at your bank or building society
- Three working days: Direct Debit (if you’ve set up one for HMRC before, online or over the phone by Bacs
- Five working days: Direct Debit or time to pay arrangement can take five days for HMRC to process if you’ve not set one up before
It is worth noting that although you can pay your Corporation Tax on behalf of your limited company by using a personal bank card, or from a personal bank account, HMRC will not accept payments made on a personal credit card. If you do have to make the payment personally, you would just reclaim it from the company, as Corporation Tax is a tax on your business, not you personally.
Do sole traders pay corporation tax?
No. Sole traders pay Income Tax via self-assessment, not Corporation Tax. This is because sole traders don’t trade through an incorporated company.
Find out more in our guide to sole trader tax.
Here to help
For more information and to make sure you’re claiming the full range of allowable business expenses and reliefs – which legally reduce your Corporation Tax liability – please contact us. Our limited company accounting support extends to all kinds of tax, not just Corporation Tax.