- Corporation Tax applies to trading profits, investment income and chargeable gains made during a company’s accounting period.
- An active limited company must be set up for Corporation Tax, and HMRC must be told within three months of the accounting period starting.
- Most companies pay their bill nine months and one day after their accounting period ends and file their Company Tax Return within 12 months.
- Allowable business expenses, capital allowances and qualifying tax reliefs can reduce taxable profits or the final Corporation Tax bill.
What is Corporation Tax?
Corporation Tax is a tax paid to HM Revenue and Customs (HMRC) on taxable profits made during an accounting period. It applies to limited companies, foreign companies with a UK branch or office, and certain clubs, co-operatives and unincorporated associations.
A UK-resident company pays Corporation Tax on taxable profits from the UK and overseas. A non-UK-resident company with a UK branch or office pays it on profits from its UK activities.
What Profits Are Subject to Corporation Tax?
Taxable profits can include money your company makes from:
- Carrying out business activities, known as trading profits
- Investments and other taxable income
- Selling assets for more than they cost, known as chargeable gains
HMRC does not send companies a Corporation Tax bill. The company is responsible for keeping suitable records, calculating its taxable profit, reporting the figures and paying the correct amount by the applicable deadline.
What Are the Current Corporation Tax Rates?
The Corporation Tax rate depends on the company’s taxable profits and whether it qualifies for Marginal Relief.
| Taxable profits | Corporation Tax treatment |
|---|---|
| £50,000 or less | 19% small profits rate |
| Between £50,000 and £250,000 | 25% main rate reduced by Marginal Relief |
| More than £250,000 | 25% main rate |
These are the standard thresholds for a 12-month accounting period where the company has no associated companies. The thresholds are reduced for shorter accounting periods and divided by the total number of associated companies, including the company itself.
Different rates apply to ring-fence profits from oil extraction and oil rights in the UK and UK continental shelf.
How Does Marginal Relief Work?
Marginal Relief gradually increases the effective Corporation Tax rate between the 19% small profits rate and the 25% main rate. It reduces the amount payable by qualifying companies with profits between the applicable lower and upper limits.
The relief is unavailable to:
- Non-UK-resident companies
- Close investment holding companies
- Companies whose profits, including relevant distributions, exceed the upper limit
Use HMRC’s Marginal Relief calculator to work out how much Marginal Relief is available on Corporation Tax profits from 1 April 2023.
How Do You Register for Corporation Tax?
When registering a limited company with Companies House, you can choose to set it up for Corporation Tax at the same time. If this was not completed during incorporation, you need to add Corporation Tax services to the company’s business tax account when it starts doing business.
An active company must tell HMRC that it is active for Corporation Tax within three months of the start of its tax accounting period.
To set up Corporation Tax after incorporation:
- Sign in to the company’s HMRC business tax account using its Government Gateway user ID and password. If you do not have a user ID, you can create one when you sign in.
- Select “Services you can add” from the account menu.
- Find Corporation Tax and select “Enrol for service”.
- Enter the company details requested by HMRC, including the company registration number, the date the company started doing business, the date its first accounts are made up to and its 10-digit Unique Taxpayer Reference.
- Activate the Corporation Tax service using the activation code and instructions HMRC sends to the company’s registered office.
The company registration number and UTR are different identifiers. Companies House issues the registration number, while HMRC issues the UTR.
Business activity includes trading and other activities that bring the company within the charge to Corporation Tax. A newly formed company that has not started business activity is normally dormant for Corporation Tax and should tell HMRC when it becomes active.
When Do You Pay Corporation Tax and File a Company Tax Return?
The Corporation Tax payment and Company Tax Return have separate deadlines. For most companies, the tax must be paid before the return is filed.
| Requirement | Standard deadline |
|---|---|
| Pay Corporation Tax or tell HMRC that nothing is due | Nine months and one day after the accounting period ends |
| File the Company Tax Return | 12 months after the accounting period ends |
A Corporation Tax accounting period cannot exceed 12 months. Because a new company’s first statutory accounts can cover more than 12 months, it can need two Company Tax Returns and two payment deadlines for its first accounts.
Companies with annual taxable profits above £1.5 million normally pay Corporation Tax in quarterly instalments. The threshold is reduced when the company has associated companies, and different payment dates apply to companies with profits above £20 million.
How Do You Pay Corporation Tax?
Use the GOV.UK Corporation Tax payment service and allow enough time for the payment to reach HMRC.
Current payment methods include:
- Online or mobile banking
- Faster Payments, CHAPS or Bacs
- Direct Debit
- Personal debit card
- Corporate debit or corporate credit card
- Payment at a bank or building society when you have an HMRC paying-in slip
Corporate card payments carry a fee. HMRC does not accept personal credit cards, and Corporation Tax cannot be paid by post.
Use the 17-character Corporation Tax payment reference for the accounting period being paid. The reference changes for each accounting period and can be found on HMRC notices, payment reminders or the company’s HMRC online account.
How Do You File a Company Tax Return?
A Company Tax Return normally contains:
- Form CT600
- Any required supplementary pages
- The company accounts
- Corporation Tax computations
The return deadline is 12 months after the end of the accounting period. The accounts and computations must normally use Inline eXtensible Business Reporting Language formatting.
The joint HMRC and Companies House online filing service closed on 31 March 2026. From 1 April 2026, companies must use commercial software to file a Company Tax Return with HMRC. Paper returns are limited to cases involving a reasonable excuse or filing in Welsh.
Annual accounts must still be filed with Companies House. Some commercial software can submit the accounts and Company Tax Return together, while other software handles only one filing.
What If No Corporation Tax Is Due?
A company must still file a Company Tax Return if HMRC has issued a notice to deliver one, even when the company made a loss or has no Corporation Tax to pay. It should also use HMRC’s nil-payment service to report that no payment is due.
Once a company has told HMRC that it is dormant, it does not need to pay Corporation Tax or file another Company Tax Return unless HMRC requests one or the company begins trading again. Its Companies House filing responsibilities continue.
Which Expenses, Allowances and Reliefs Reduce Corporation Tax?
Companies calculate Corporation Tax using taxable profits rather than accounting profits alone. Deductible revenue expenses, capital allowances and qualifying reliefs can reduce the taxable amount or final tax bill.
What the company can claim depends on the reason for the expenditure, the type of asset and the conditions attached to the relevant relief.
Allowable Business Expenses
A revenue expense can be deducted when it:
- is incurred wholly and exclusively for the company’s business
- is not specifically disallowed under the Corporation Tax rules
- is included correctly in the company’s accounts
Common deductible costs include:
- Employee salaries and employer National Insurance contributions
- Employer pension contributions
- Office rent, utilities and business insurance
- Advertising and marketing
- Accountancy, legal and other professional fees
- Business software, telephone and broadband costs
- Stationery, printing and postage
- Qualifying business travel and accommodation
- Bank charges and finance costs
If an expense has business and private elements, the identifiable business portion can be deducted when it can be separated accurately. Client entertaining is an example of an expense that is specifically disallowed when calculating taxable profits.
Use HMRC’s company expenses guidance to check the treatment of individual costs.
Capital Allowances
Buying equipment, machinery or another long-term business asset is normally capital expenditure rather than a revenue expense. Capital allowances allow qualifying businesses to deduct some or all of an asset’s value when calculating taxable profits.
Current capital allowances include:
- Annual Investment Allowance: Deducts up to £1 million of qualifying plant and machinery expenditure. Business cars do not qualify.
- Full expensing: Allows companies to deduct 100% of qualifying new and unused main-rate plant and machinery expenditure.
- 50% first-year allowance: Applies to qualifying new and unused special-rate plant and machinery.
- 40% first-year allowance: Applies to qualifying plant and machinery expenditure incurred on or after 1 January 2026.
- Writing-down allowances: Apply when expenditure does not qualify for another full or first-year allowance, or when value remains after another allowance is claimed.
Different rules apply to business cars, leased assets, assets with private use and assets previously owned for another purpose.
Other Corporation Tax Reliefs
Depending on its activities and financial position, a company can qualify for:
- Research and Development relief: The merged R&D expenditure credit scheme and Enhanced R&D Intensive Support apply to qualifying accounting periods beginning on or after 1 April 2024. The project must seek an advance in science or technology.
- Trading loss relief: Qualifying losses can be offset against other profits in the same period, carried back against profits from an earlier period or carried forward. Qualifying groups can surrender certain losses between group members.
- Charitable donation relief: Qualifying donations can be deducted when calculating total taxable profits, up to the amount that reduces those profits to zero.
- Patent Box relief: Qualifying companies can apply a reduced Corporation Tax rate to profits earned from patented inventions.
- Creative industry reliefs: Specific reliefs exist for qualifying film, television, animation, video game, theatre, orchestra, museum and gallery activities.
The eligibility rules and claim procedures differ between reliefs. Keep complete supporting records and include each claim in the relevant Company Tax Return.
FAQs About Corporation Tax
Do sole traders pay Corporation Tax?
No. Sole traders do not pay Corporation Tax because they are taxed as individuals rather than companies. They pay Income Tax on their taxable business profits through Self Assessment and can also have National Insurance obligations.
Do dividends reduce Corporation Tax?
No. Dividends are distributions of company profits and are not deductible when calculating the company’s taxable income. Corporation Tax is calculated before dividends are paid. Shareholders can then have separate personal Income Tax to pay on dividends they receive.
What happens if you pay Corporation Tax late?
HMRC charges late payment interest when Corporation Tax is paid after the deadline. Interest runs from the day after the payment was due until the tax is paid. If your company cannot pay on time, contact HMRC promptly to discuss available payment options.
Can you get a Corporation Tax refund if you overpay?
Yes. If your company has overpaid Corporation Tax, HMRC can repay the excess and can also pay repayment interest. You can request a repayment through the relevant Corporation Tax process or claim overpayment relief when the circumstances require it.
Can you pay Corporation Tax in instalments if you cannot afford the bill?
Yes. If your company cannot pay its Corporation Tax bill in full, HMRC can agree a Time to Pay arrangement based on what the company can afford. This is different from the statutory quarterly instalment regime that applies to companies above the relevant profit thresholds.
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