Corporation Tax in the UK: Rates, Deadlines & How to Pay

What is corporation tax?

Corporation Tax is a tax on your business profits. It’s like income tax for companies. You make profits, you pay tax.

When you set up your business as a limited company you need to prepare to complete a Corporation Tax return. You’ll need to complete and submit this Corporation Tax Return (also known as form CT600) to HMRC 12 months after the end of your financial accounting period.

What is your financial accounting period?

Your financial accounting period is a 12 month period set by Companies House, based on the month when you incorporated your company. 

Your very first year financial accounting period may actually be longer than 12 months as Companies House rounds up your financial accounting period until the end of the month. For example, if your company was incorporated on 20 January 2024 your first financial accounting period will run from 20 January 2024 to 31 January 2025, so your first year’s accounting period will exceed 12 months by 11 days. That means that when you file your first Corporation Tax Return you will end up filing two returns as a Company Tax Return can’t cover more than 12 months.

So you’ll prepare one return for the period 20 January 2024 to 19 January 2025, then a second return to cover 20 January 2025 to 31  January 2025. This also means that your first return will be due by the 19th January 2025!

This is normal for almost every company in their first year, and the good news is that from the second year onwards your Corporation Tax Return will only ever be one return, as you won’t be exceeding 12 months in your financial accounting period.

What are the corporation tax rates?

It’s actually quite simple:

• 19% small profits rate for companies with profits under £50,000.
• 25% main rate for companies with  profits over £250,000.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by a marginal relief. This provides a gradual increase in the Corporation Tax rate.

If your company's profits are between £50,000 and £250,000 and marginal relief is applied, you can use this handy calculator to help calculate how much you’re going to pay.

The good news is that you don’t necessarily start paying Corporation Tax the moment you make a profit. Previous losses can roll forward. You may have made losses for a few years when your business is getting started, which is completely normal. You can use this to offset liability when you do start making a profit.

When do you pay?

When you pay will depend on your company's financial accounting period as explained above. Your deadline for paying is 9 months and 1 day from the end of your accounting period. As you’re able to change your financial accounting period with Companies House some people change theirs to use 31 March as the end of the accounting period. This makes the deadline 1 January. Happy New Year!

Do you pay corporation tax on everything?

If it’s profit, you pay.

However, there are lots of tax allowable expenses. These are costs you can deduct from your profits before working out the tax due. Basically these cover the costs of running your business. Pay some salaries? Deduct it from your total. Ordered some printer paper? Deduct it. You get the idea.

Some costs are allowed, some aren’t. It’s always good to follow the rule of thumb that for something to count as a legitimate expense it must be used ‘wholly and exclusively’ for the business.

Other costs get a bit confusing too. For example, take your clients out for a big meal, that’s not permitted as tax deductible expense. You’ll also need to do some extra reading on capital allowances if you buy business assets. The Annual Investment Allowance (AIA) allows you to deduct the full of most equipment and plant and machinery assets purchased up to a limit of £1m.

Is there any Corporation Tax relief?

Yes. There are various ways to reduce your Corporation Tax bill without being naughty. These include things such as R&D relief, creative industry tax reliefs and disincorporation relief and more. Yay, more light reading.

How do you pay?

The tricky part of Corporation Tax is calculating it; paying it is pretty straightforward.

You can pay: 

• through your online bank account
• online or online or phone banking by Faster Payments or CHAPS
• by debit or corporate credit card. 
• in person at your bank or building society

You can’t pay your Corporation Tax by post.

More details of how to pay are available on Gov.uk website. Remember to make sure you leave enough time for the payment to actually arrive with HMRC. Don’t pay on time? Get ready for a fine and a sharp slap on the wrist.

The key is in your records

For limited companies liable for Corporation Tax, the key to simplicity is in keeping records. Being able to access your accounting records quickly and simply makes short work of a reputably complicated tax. Fortunately with ANNA’s +Taxes, Corporation Tax is much simpler. +Taxes keeps track of all your transactions, assigns them to expense categories and calculates your Corporation Tax bill as you go. You can even use ANNA’s smart pots to set money aside for your bill.

Want to get started with Corporation Tax? Learn how to register for corporation tax and ensure your business stays compliant from day one

Sources: https://www.gov.uk/pay-corporation-tax https://www.gov.uk/capital-allowances