Corporation Tax Explained: What UK Limited Companies Need to Know

What is Corporation Tax?

Corporation Tax is a tax on the profits of UK limited companies and some other organisations. Unlike Income Tax (which applies to individuals), Corporation Tax applies to the taxable profits your company makes during each accounting period — typically a 12-month period aligned with your company's financial year.

It's one of the most important taxes for any limited company director to understand, as getting it wrong can result in penalties and interest charges from HMRC.

Who Pays Corporation Tax?

You must pay Corporation Tax if your organisation is a:

• Limited company registered in the UK
• Foreign company with a UK branch or office
• Club, co-operative, or unincorporated association (e.g. a community group or sports club)

Sole traders and partnerships do not pay Corporation Tax — they pay Income Tax on their profits through Self Assessment instead.

Current Corporation Tax Rates (2024/25)

The Corporation Tax rate in the UK depends on your company's annual profits:

• 19% — for companies with profits of £50,000 or less (small profits rate)
• 25% — for companies with profits of £250,000 or more (main rate)
• Marginal Relief — for companies with profits between £50,000 and £250,000, a tapered rate applies between 19% and 25%

These rates apply from 1 April 2023. If your company was incorporated before this date, the previous flat rate of 19% applied to all profits.

What Counts as Taxable Profit?

Corporation Tax is charged on your company's taxable profits, which includes:

• Trading profits (income from your main business activities, minus allowable expenses)
• Investment income (e.g. interest received)
• Chargeable gains (profits from selling assets)

You can reduce your taxable profit by deducting allowable business expenses — costs that are wholly and exclusively for business purposes.

Common Allowable Expenses

Expenses you can deduct to reduce your Corporation Tax bill include:

• Staff salaries, wages, and employer National Insurance contributions
• Office costs — rent, utilities, registered office address fees
• Professional fees — accountants, solicitors, consultants
• Marketing and advertising costs
• Software subscriptions and IT equipment
• Business travel and accommodation
• Bank charges and interest on business loans
• Depreciation of assets (via Capital Allowances)

When Do You Pay Corporation Tax?

The deadline for paying Corporation Tax depends on your company's size:

• Small companies (profits under £1.5 million) — pay 9 months and 1 day after the end of your accounting period. For example, if your year ends 31 March, payment is due by 1 January the following year.
• Large companies (profits over £1.5 million) — pay in quarterly instalments throughout the year.

Note: paying on time is separate from filing your Company Tax Return, which has its own deadline.

How to File a Company Tax Return (CT600)

Even if your company makes no profit or has a loss, you must still file a Company Tax Return (CT600) with HMRC. Here's how:

1. Prepare your annual accounts — your profit and loss account and balance sheet for the accounting period.
2. Calculate your Corporation Tax liability — using your taxable profits and the applicable rate.
3. File your CT600 online via HMRC's Government Gateway, usually using accounting software.
4. Pay any tax owed by the payment deadline.

The deadline to file your CT600 is 12 months after the end of your accounting period. The deadline to pay is earlier — 9 months and 1 day after the period ends.

Penalties for Late Filing or Payment

HMRC takes late Corporation Tax seriously. Penalties include:

• £100 for filing up to 3 months late
• £200 for filing more than 3 months late
• Additional tax-based penalties for filing over 6 or 12 months late
• Interest charged on any unpaid tax from the due date

Tips to Reduce Your Corporation Tax Bill Legally

• Claim all allowable expenses — many directors miss out on legitimate deductions
• Use the Annual Investment Allowance (AIA) — claim 100% of qualifying capital expenditure up to £1 million
• Pay pension contributions through the company — these are deductible
• Claim R&D Tax Credits if your company carries out qualifying research and development
• Work with an accountant — a good accountant will often save you more than their fee

Keep Your Registered Office Address Up to Date

HMRC sends Corporation Tax notices, payment reminders, and compliance letters to your company's registered office address. Missing these can lead to penalties even if you weren't aware of them.

Spectre Offices provides professional registered office addresses across the UK with mail forwarding and scanning, so your company never misses important correspondence from HMRC or Companies House.