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 on who pays it, what triggers it, and how to calculate it correctly. Get it wrong, and HMRC will add interest, penalties, or both.

This guide from CIGMA Accounting cuts through the complexity. We cover everything from who is liable, to what profits are taxable, to how and when to pay – so your business stays compliant and your tax bill stays as low as legally possible.

What Is Corporation Tax?

Corporation Tax (CT) is a direct tax levied on the profits of UK-resident companies and certain other organisations. Unlike VAT or PAYE, HMRC does not send you a bill – your company must calculate its own liability, file a CT600 Company Tax Return, and pay on time.

Key Fact

HMRC does not automatically bill you for Corporation Tax. It is entirely self-assessed. Failure to register, calculate, or pay is your company’s responsibility.

Who Pays Corporation Tax?

The following entities are subject to Corporation Tax:

• UK-resident limited companies – the most common type
• Unincorporated associations (clubs, co-operatives, etc.)
• Foreign companies with a UK branch or permanent establishment
• Members’ clubs and societies with trading income

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

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 Taxable?

Corporation Tax applies to a company’s taxable total profits (TTP), which includes:

• Trading profits – income from your core business activities
• Investment income – interest, rent, and similar receipts
• Chargeable gains – profits from selling business assets

Dividends received from other UK companies are generally exempt. Your accounting profit is adjusted for tax purposes – adding back disallowable expenses (like client entertainment) and deducting capital allowances – to arrive at the taxable figure. For a detailed breakdown of this process, see our guide on calculating taxable income for companies.

Current Corporation Tax Rates (2025/26)

Since 1 April 2023, the UK has operated a tiered Corporation Tax system:

Rate Summary

Small Profits Rate: 19% on profits up to £50,000
Marginal Relief: Effective rate between 19%–25% on profits of £50,001–£250,000
Main Rate: 25% on profits above £250,000

These thresholds are divided if your company has associated companies. For example, one associated company halves both limits to £25,000 and £125,000 respectively. If your business operates across multiple entities, understanding your group company structure is essential to calculating the correct rate. 

Key Compliance Obligations

Register with HMRC

You must notify HMRC that your company is liable for Corporation Tax within three months of starting to trade. HMRC will then issue a Unique Taxpayer Reference (UTR) and set up your tax record.

File a CT600 Company Tax Return

Your CT600 must be filed within 12 months of the end of your accounting period. This return details your taxable profits, allowances claimed, and Corporation Tax due.  Understanding your full company tax return obligations, including what must be declared and when – is essential to avoid penalties. 

Pay Corporation Tax

Payment is due 9 months and 1 day after the end of your accounting period – earlier than your filing deadline. Most small and medium-sized companies pay in a single annual instalment. Large companies (profits over £1.5m) pay in quarterly instalments.

Reporting Changes to Your Company

Beyond your annual CT600 return, companies also have ongoing statutory reporting duties throughout the year. Changes to your company’s details, structure, or trading status must be reported promptly to both HMRC and Companies House. Review what company changes you must report to ensure you are not missing a compliance obligation that sits outside the annual tax cycle.

Available Reliefs That Can Reduce Your Bill

• Annual Investment Allowance (AIA) – 100% deduction on qualifying plant and machinery up to £1 million
• R&D Tax Credits – significant relief for innovative companies
• Marginal Relief – automatic tapering for profits between £50,000–£250,000
• Loss Relief – carry losses back or forward to offset profits. See how claiming corporation tax losses works in practice and what conditions apply.
• Loss Relief – carry losses back or forward to offset profits
• Patent Box – reduced 10% rate on profits from patented inventions

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

Common Mistakes to Avoid

• Missing the payment deadline (different to the filing deadline)
• Failing to register with HMRC as soon as trading begins
• Not claiming all allowable expenses and capital allowances
• Ignoring the impact of associated companies on rate thresholds
• Overlooking R&D claims – even modest innovation may qualify

Make Sure Your Corporation Tax Is Calculated Correctly

At Cigma Accounting, we help businesses across London understand how corporation tax works in practice, so they can meet their obligations accurately and avoid unnecessary risk. From Wimbledon, including Raynes Park and Morden, many companies struggle to interpret how profits are calculated and reported, which is why our guidance focuses on making complex rules clear and manageable.

Corporation tax affects every limited company, and even small misunderstandings can lead to errors, penalties, or cash flow issues. With physical offices across London, we support businesses in keeping their reporting accurate, ensuring deadlines are met, and maintaining full compliance with HMRC requirements.