Corporation Tax for UK Founders: Everything You Need to Know
UK corporation tax is charged on your company's taxable profits at rates of 19-25% depending on profit level. Understanding what counts as taxable profit, which reliefs reduce your liability, and when tax is due enables you to plan your tax position rather than react to it at filing time.
What corporation tax is and who pays it#
Corporation tax is levied on the profits of UK limited companies. Every UK limited company must register with HMRC for corporation tax within 3 months of beginning to trade, file an annual company tax return (CT600) within 12 months of the accounting period end, and pay any tax due. Sole traders and partnerships pay income tax on business profits rather than corporation tax — it applies specifically to incorporated entities.
Current corporation tax rates#
From April 2023, corporation tax operates on a two-rate structure. The small profits rate of 19% applies to annual profits of £50,000 or less. The main rate of 25% applies to annual profits above £250,000. Companies with profits between £50,000 and £250,000 pay a tapered effective rate between 19% and 25%, calculated using marginal relief. These thresholds are divided by the number of associated companies — a business with one associated company divides the thresholds by two, meaning each company faces the main rate at profits above £125,000.
What counts as taxable profit#
Taxable profit differs from accounting profit. Starting from your accounting profit (revenue minus expenses as reported in your annual accounts), you make adjustments. Allowable deductions reduce taxable profit: most normal business expenses — salaries (including director salaries), rent, materials, professional fees, marketing, and business travel. Non-allowable items must be added back: client entertainment, fines and penalties, and accounting depreciation (replaced by capital allowances for tax purposes). The result is taxable profit, on which corporation tax is calculated.
The most valuable corporation tax reliefs#
Annual Investment Allowance: 100% tax deduction on qualifying plant and machinery purchases up to £1 million per year — reducing taxable profit pound for pound on qualifying equipment. R&D tax credits: enhanced deduction (186% of qualifying costs for SMEs from April 2023) on qualifying research and development expenditure, with a cash payment option for loss-making companies. Loss relief: trading losses can be carried forward to reduce future profits or carried back to recover tax already paid. These three reliefs often represent the largest available reductions to a company's corporation tax liability.
Corporation tax filing and payment deadlines#
The CT600 corporation tax return must be filed within 12 months of the accounting period end. Tax payment is due 9 months and 1 day after the accounting period end — before the return filing deadline. For a company with a 31 December year-end: tax is due 1 October the following year; the return is due 31 December the following year. Large companies (profits above £1.5 million) pay tax in quarterly instalments during the accounting period itself. Missing payment deadlines incurs interest at Bank Rate plus 2.5%; late filing incurs penalties from £100 to 10% of the tax due.
People also ask
What is the UK corporation tax rate?
The UK corporation tax small profits rate is 19% on annual profits up to £50,000. The main rate is 25% on profits above £250,000. Companies with profits between £50,000 and £250,000 pay a tapered effective rate between the two, calculated using marginal relief.
When is corporation tax due?
Corporation tax is due 9 months and 1 day after the end of the accounting period. The tax return (CT600) is due within 12 months of the accounting period end. For companies with a 31 December year-end, tax is due 1 October and the return is due 31 December the following year.
What expenses reduce corporation tax?
Allowable business expenses that reduce taxable profit include salaries, rent, materials, professional fees, marketing costs, business travel, and capital allowances (Annual Investment Allowance on qualifying equipment). R&D tax credits provide an additional enhanced deduction for qualifying research and development.
Track your tax position with AskBiz
AskBiz connects to your accounting software and tracks your taxable profit position throughout the year — no year-end surprises. Free to start.
Start free — no credit card required →