What Is Corporation Tax?
Corporation tax is the tax UK companies pay on their profits. Learn the current rates, how it is calculated, and key reliefs available.
Key Takeaways
- Corporation tax is charged on a company's taxable profits — revenue minus allowable expenses
- The main rate is 25% for profits over £250,000; the small profits rate is 19% for profits under £50,000
- The tax return (CT600) must be filed within 12 months of the accounting period end
- Tax is due 9 months and 1 day after the accounting period end for smaller companies
What corporation tax is
Corporation tax is the tax levied on the profits of UK limited companies. Every limited company must register with HMRC for corporation tax within 3 months of beginning to trade, file an annual company tax return (CT600), and pay any tax due. Sole traders and partnerships pay income tax on profits rather than corporation tax — it applies specifically to incorporated entities.
Current rates
From April 2023, corporation tax operates on a two-rate system. The small profits rate of 19% applies to companies with profits of £50,000 or less per year. The main rate of 25% applies to profits above £250,000. Companies with profits between £50,000 and £250,000 pay a tapered rate calculated using marginal relief. These thresholds are divided by the number of associated companies.
What counts as taxable profit
Taxable profit differs from accounting profit. You start with your accounting profit and make adjustments. Allowable deductions include most normal business expenses: salaries, rent, materials, marketing, professional fees. Non-allowable items — client entertainment, fines, depreciation — are added back. Depreciation is replaced by capital allowances for tax purposes.
Filing and payment deadlines
The CT600 must be filed within 12 months of the end of your accounting period. Tax payment is due 9 months and 1 day after the accounting period end. Large companies (profits over £1.5 million) pay in quarterly instalments. Missing deadlines incurs automatic penalties: £100 for up to 3 months late, rising to 10% of tax due for returns more than 12 months late.
Key reliefs and allowances
The Annual Investment Allowance (AIA) provides 100% deduction on qualifying plant and machinery up to £1 million per year. R&D tax credits reward qualifying research and development investment. Loss relief allows losses to be carried forward to reduce future profits, or in some cases carried back to recover tax already paid.