Understanding Corporation Tax: A Complete Guide for UK Companies

Why Corporation Tax Matters to Your Business

Corporation Tax is one of the most significant financial obligations your UK company will face. Yet many business owners, especially those running their first limited company, are unclear about who pays it, which profits are taxable, what rates apply and when payment is due. Get it wrong, and HMRC can add interest, penalties, or both.

This corporation tax guide from CIGMA Accounting explains the main rules UK companies need to understand. We cover who is liable, how taxable profits are calculated, the applicable Corporation Tax rates and allowances, important filing and payment deadlines, and reliefs that may legitimately reduce your company’s tax liability.

What Is Corporation Tax?

Corporation Tax (CT) is a direct tax charged on the profits of UK-resident companies and certain other organisations.

Unlike VAT or PAYE, HMRC does not normally send your company a Corporation Tax bill. The company is responsible for calculating its liability, filing a CT600 Company Tax Return and paying the correct amount by the relevant deadline.

Key Fact: UK Corporation Tax operates on a self-assessment basis. Responsibility for registering, calculating the company’s taxable profits, filing the return and paying the tax rests with the company.

Who Pays Corporation Tax in the UK?

The Corporation Tax UK rules apply primarily to companies and certain organisations carrying on taxable activities. Entities that may be subject to Corporation Tax include:

• UK-resident limited companies the most common type
• Unincorporated associations, including certain clubs and co-operatives
• Foreign companies with a UK branch or permanent establishment
• Members’ clubs and societies with taxable trading income

Sole traders and ordinary partnerships do not pay Corporation Tax on their business profits. Instead, individuals generally pay Income Tax on their share of profits through Self-Assessment.

If you are still weighing up whether to operate as a limited company or continue as a sole trader, the tax treatment of profits is one of the most important factors to consider. Read our full breakdown on whether you should incorporate your business, covering the financial, legal and tax implications of each structure.

What Profits Are Subject to Corporation Tax?

Corporation Tax applies to a company’s taxable total profits. Depending on the activities of the company, these can include:

• Trading profits – income generated from the company’s core business activities
• Investment income – such as taxable interest, rent and similar receipts
• Chargeable gains – taxable gains arising when the company disposes of certain assets

Dividends received from other UK companies are generally exempt. Your accounting profit is then adjusted for tax purposes. This may involve adding back disallowable expenditure, such as client entertainment, and deducting available capital allowances to arrive at taxable profits.

For a detailed breakdown of this process, see our guide on calculating taxable income for companies.

Corporation Tax Rates and Allowances

Understanding the applicable Corporation Tax rates and allowances is important because the rate a company pays depends on its level of taxable profits and, in some cases, the number of associated companies.

Corporation Tax Rate Summary

• Small Profits Rate: 19% where qualifying profits are £50,000 or less
• Marginal Relief: applies where profits fall between £50,000 and £250,000, producing a gradual increase in the effective Corporation Tax rate
• Main Rate: 25% where profits exceed £250,000

The £50,000 and £250,000 thresholds can be reduced where a company has associated companies. For example, where there is one other associated company, the relevant limits are normally divided between the two companies.

If your business operates across multiple entities, understanding your group company structure is therefore essential when determining the correct Corporation Tax position.

Key Corporation Tax Compliance Obligations

Corporation Tax involves more than calculating a percentage of annual profit. Companies must meet several registration, reporting, filing and payment obligations.

Register with HMRC

You generally need to tell HMRC when your company becomes active for Corporation Tax. HMRC uses your company’s Unique Taxpayer Reference (UTR) to identify its Corporation Tax record.

File a CT600 Company Tax Return

Your CT600 Company Tax Return is normally due within 12 months of the end of the relevant accounting period. The return reports taxable profits, relevant allowances and reliefs, and the resulting Corporation Tax liability.

Understanding your full company tax return obligations, including what must be declared and when, is essential for avoiding unnecessary filing problems and penalties.

Pay Corporation Tax

For companies that are not within the quarterly instalment payment regime, Corporation Tax is generally due 9 months and 1 day after the end of the accounting period. This is important because the payment deadline normally falls before the CT600 filing deadline.

Large and very large companies can be subject to different payment rules, including payment by instalments, so companies with substantial taxable profits should confirm the deadlines that apply to their circumstances.

Reporting Changes to Your Company

Beyond the annual CT600 return, companies have ongoing statutory reporting responsibilities. Changes to company details, structure or trading status may need to be reported to HMRC, Companies House or both.

Review what company changes you must report to ensure you are not missing a compliance obligation outside the annual tax cycle.

Corporation Tax Allowances and Reliefs That Can Reduce Your Bill

The amount of UK Corporation Tax payable does not depend solely on accounting profit. Companies may be able to use allowances, deductions and tax reliefs where the relevant qualifying conditions are satisfied.

• Annual Investment Allowance (AIA) – a 100% deduction for qualifying expenditure on plant and machinery, subject to the applicable annual limit
• Capital allowances – tax relief may be available for qualifying capital expenditure that cannot be deducted as an ordinary business expense
• R&D tax relief – qualifying companies carrying out eligible research and development activities may be able to claim relief under the applicable R&D regime
• Marginal Relief – reduces the effective Corporation Tax burden for qualifying companies with profits between the relevant lower and upper limits
• Loss Relief – qualifying trading losses may be available to offset against profits. See how claiming Corporation Tax losses works and what conditions apply
• Patent Box – qualifying companies may elect for a reduced 10% Corporation Tax rate to apply to qualifying profits from patented inventions and certain other intellectual property rights

Knowing which reliefs apply to your business is only the starting point. Explore our guide on tax planning strategies for companies to understand how available reliefs can form part of a proactive, year-round approach.

Common Corporation Tax Mistakes to Avoid

• Missing the Corporation Tax payment deadline because it is confused with the CT600 filing deadline
• Failing to notify HMRC when the company becomes active
• Calculating taxable profit directly from accounting profit without making the necessary tax adjustments
• Failing to claim available expenses, reliefs and capital allowances
• Ignoring the impact of associated companies on the Corporation Tax thresholds
• Failing to consider whether qualifying business investment or innovation could attract tax relief

Good Corporation Tax management therefore requires accurate accounts, appropriate tax adjustments, awareness of available reliefs and careful attention to both filing and payment deadlines.

Case Study: Reviewing Corporation Tax as Company Profits Increased

A growing consultancy approached our Wimbledon office after a particularly successful trading year. The directors expected taxable profits of approximately £180,000 and initially assumed that the company would simply pay the 25% Corporation Tax main rate on the entire amount.

Cigma Accounting reviewed the company’s draft accounts and tax computations before the CT600 was prepared. Because profits fell between the £50,000 and £250,000 thresholds, we established whether Marginal Relief applied rather than automatically calculating Corporation Tax at a flat 25%.

The directors also had interests in another company, so we reviewed whether the businesses were associated companies for Corporation Tax purposes. This was important because associated companies can reduce the profit thresholds used when determining entitlement to the small profits rate and Marginal Relief.

We then reviewed the accounting profit for the necessary tax adjustments. This included identifying expenditure requiring an add-back, considering available capital allowances on qualifying equipment purchases and reviewing whether trading losses or other legitimate Corporation Tax reliefs were available. We also distinguished the Corporation Tax payment deadline from the later CT600 filing deadline so sufficient cash could be reserved for the liability.

Our wider support covered the company’s annual accounts, bookkeeping, VAT, payroll and business tax planning. This gave the directors greater visibility over their tax position during the year instead of discovering the final Corporation Tax liability shortly before payment was due.

The company was left with a properly supported Corporation Tax calculation, a clearer understanding of how increasing profits affected its effective tax rate and a more structured process for managing future tax liabilities and reliefs.