Corporation Tax Basics

BusinessLast reviewed: 1 April 20255 min

Corporation Tax is charged on the taxable profits of limited companies and other incorporated entities in the UK. Unlike income tax, there is no automatic assessment — you must work out and pay what you owe and file a return each year.

Key points

  • You must register your company for Corporation Tax with HMRC within three months of starting to trade.
  • The main rate of Corporation Tax is 25% for profits over £250,000; the small profits rate is 19% for profits up to £50,000.
  • Corporation Tax must be paid nine months and one day after the end of your company's accounting period.
  • A Company Tax Return (CT600) must be filed with HMRC within twelve months of the end of the accounting period.

Rates and Thresholds

Since April 2023, Corporation Tax in the UK has a two-rate structure. Companies with taxable profits of £50,000 or less pay at the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%. Profits between these thresholds benefit from marginal relief, which tapers the effective rate between 19% and 25%.

These thresholds are divided between associated companies — if your company is associated with others (e.g. companies under common control), the thresholds are reduced proportionally. This can catch small business groups by surprise, so seek professional advice if you have related companies.

Allowable Deductions and Reliefs

Corporation Tax is charged on taxable profits — broadly, your accounting profit adjusted for disallowable expenses and tax reliefs. Common allowable deductions include staff costs, rent, utilities, professional fees, and most ordinary business expenses. Items like client entertaining, fines, and depreciation are typically disallowed and must be added back.

Key reliefs include Capital Allowances (allowing you to deduct the cost of plant and machinery — the Annual Investment Allowance covers 100% of qualifying expenditure up to £1 million) and Research and Development (R&D) Relief for companies investing in innovation. Trading losses can be carried back one year or carried forward indefinitely against future profits.

Filing and Payment Deadlines

You must pay Corporation Tax by nine months and one day after the end of your accounting period. For a company with a 31 March year end, this means paying by 1 January. Filing your Company Tax Return (CT600) is a separate obligation — this must be submitted online to HMRC within twelve months of the accounting period end, along with statutory accounts.

Larger companies (profits above £1.5 million) must pay Corporation Tax in quarterly instalments during the accounting period itself. HMRC charges interest on late payments and can impose penalties for late returns. The Company Tax Return and accounts are filed via HMRC's online services or your accountant's software — paper filing is no longer accepted for most companies.

Frequently asked questions

My company made a loss this year. Do I still need to file a return?
Yes. You must file a Company Tax Return even if no Corporation Tax is due, even if you made a loss, and even if the company was dormant for part of the year. Failure to file on time results in automatic penalties starting at £100. You can use a trading loss to claim a refund of tax paid in the previous year (carry-back) or carry it forward against future profits.
Can I pay myself a salary from my company and deduct it for Corporation Tax?
Yes. A director's salary paid through PAYE is an allowable business expense and reduces the company's taxable profit. Dividends, however, are paid from after-tax profit and are not an allowable deduction. The combination of a low salary and dividends is a common tax-planning strategy, but individual circumstances vary — take advice from an accountant.
What is a Company Tax Return (CT600)?
The CT600 is the form used to report your company's taxable profits and calculate its Corporation Tax liability for an accounting period. It is filed online with HMRC along with statutory accounts and a tax computation. Your accountant will usually prepare it. HMRC's online system for company tax is called Corporation Tax Online (CATO).

What to do next

  1. 1
    Register for Corporation Tax with HMRC
  2. 2
    File your Company Tax Return online
  3. 3
    Read about VAT registration

Official bodies and resources

HM Revenue & Customs

Government

Responsible for collecting taxes, paying some forms of state support, and administering national insurance.

Visit website0300 200 3300

Companies House

Government

Incorporates and dissolves limited companies, registers company information, and makes it available to the public.

Visit website0303 123 4500

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Disclaimer

This information is for general guidance only and does not constitute legal advice. You should seek qualified legal help if your situation requires it.