Corporation Tax

The main Corporation Tax rate is 25% on profits over £250,000, with a small profits rate of 19% for profits up to £50,000. Marginal relief applies between the two thresholds, providing a tapered effective rate. Associated companies (those under common control) split these thresholds equally between them. Companies can reduce their tax bill through reliefs including the Annual Investment Allowance (£1 million per year for qualifying plant and machinery), R&D reliefs, and loss relief. A Company Tax Return (CT600) must be filed with HMRC within 12 months of the accounting period end; the tax itself must be paid within nine months and one day. Large companies with profits over £1.5 million pay by quarterly instalments. HMRC administers Corporation Tax; penalties apply for late filing and payment.

In practice, the two dates that catch directors out are different from each other and in a counter-intuitive order: the money is due first (nine months and one day after your year end) and the return is due later (twelve months after your year end). Filing on time but paying late still attracts interest, and paying on time but filing late still attracts penalties. You must also tell HMRC when your company becomes active, and file a return for every accounting period even if the company made a loss or no profit at all.

Worked example: Northfield Joinery Ltd has a 31 March year end and taxable profits of £60,000. Because profits exceed the £50,000 small profits threshold but fall below £250,000, marginal relief applies, giving an effective rate between 19% and 25% rather than a flat charge. The company buys £18,000 of machinery in the year and claims the Annual Investment Allowance, which reduces taxable profits pound for pound. Payment is due by 1 January the following year and the CT600 by 31 March.

The commonest misconceptions are worth flagging. Corporation Tax is charged on taxable profit, not on turnover and not on money left in the bank, so a company can owe tax on profits it has already spent on stock or repaying a loan. Dividends are paid out of post-tax profit and are not a deductible expense, unlike director salary. And the £250,000 and £50,000 thresholds are divided between associated companies under common control, so setting up a second company rarely delivers the saving people expect.

Corporation Tax sits alongside VAT registration, PAYE for any salaried directors or staff, and your annual confirmation statement at Companies House — four separate deadlines that are easy to conflate. If you are deciding how to trade, read our guide comparing sole trader and limited company, and see Corporation Tax for the filing steps in order.