Corporation Tax is one of the main taxes UK limited companies need to understand. Unlike Income Tax, which is generally paid by individuals, Corporation Tax is paid by a company on its taxable profits. If you operate through a limited company, understanding how Corporation Tax works, what expenses you can claim and when payments are due can help you manage your finances more effectively and avoid unnecessary penalties.
Corporation Tax is charged on the profits a company makes during its accounting period. Taxable profits can include profits from normal trading activities, income from investments and certain gains made when the company sells or disposes of assets. A UK-resident company will generally be subject to Corporation Tax on its taxable profits from the UK and overseas, although specific rules and reliefs may apply depending on the circumstances.
For the financial year beginning 1 April 2026, the main Corporation Tax rate remains 25%. Companies with qualifying profits of £50,000 or less may generally qualify for the 19% small profits rate. Companies with profits above £250,000 normally pay the 25% main rate.
If your company’s profits fall between £50,000 and £250,000, you may be entitled to Marginal Relief. Marginal Relief gradually increases the effective amount of Corporation Tax payable between the small profits rate and the main rate rather than immediately moving a company from 19% to 25%.
The £50,000 and £250,000 profit limits are not always fixed for every company. They can be reduced where a company has associated companies or where its accounting period is shorter than 12 months. This is why businesses with multiple connected companies may need to pay particular attention when estimating their Corporation Tax liability.
Corporation Tax is calculated on taxable profit rather than simply the total amount of money coming into the company. Your company’s accounts may show income from selling products or services, but qualifying business expenses can generally be deducted when calculating taxable profits.
Allowable business expenses may include costs such as employee salaries, office expenses, accounting fees, certain professional fees, software subscriptions, business insurance, advertising, marketing and other costs incurred for legitimate business purposes. However, not every payment made from a company bank account is automatically deductible for Corporation Tax purposes.
Expenses normally need to have a genuine business purpose and meet the relevant tax rules. Some expenses are specifically restricted or disallowed. For example, certain forms of client entertaining are not deductible for Corporation Tax purposes. Personal expenses paid by the company can also create additional accounting and tax consequences.
There is also an important distinction between normal day-to-day business expenses and capital expenditure. If your company purchases equipment, machinery, computers or other long-term business assets, the cost may need to be dealt with under the capital allowances rules rather than simply being deducted as an ordinary business expense. Correctly categorising expenses can therefore have a significant impact on your Corporation Tax calculation.
When a limited company starts doing business, it must also make sure its Corporation Tax affairs are properly set up with HMRC. Starting to do business can include activities such as buying or selling goods, advertising, renting commercial premises or employing staff. A company that has not started trading or carrying on business may instead be treated as dormant for Corporation Tax purposes.
Limited companies do not normally receive a Corporation Tax bill telling them exactly how much to pay. The company is responsible for maintaining accurate records, calculating its taxable profits, working out how much Corporation Tax is due, paying the tax and submitting the required Company Tax Return.
For most companies, Corporation Tax is normally due 9 months and 1 day after the end of the company’s Corporation Tax accounting period. For example, if an accounting period ends on 31 March, the usual payment deadline would normally be 1 January of the following year.
The Company Tax Return has a different deadline. It is generally due 12 months after the end of the accounting period covered by the return. This means the Corporation Tax payment deadline usually arrives before the deadline for submitting the Company Tax Return. Companies should therefore calculate their liability early enough to make the correct payment rather than waiting until the final filing date.
Larger companies may be subject to different Corporation Tax payment rules and may need to pay their tax through quarterly instalments. Businesses approaching these levels should obtain appropriate professional advice because the payment rules can become considerably more complex.
Corporation Tax should also be considered throughout the year rather than only when the annual accounts are prepared. Maintaining accurate bookkeeping makes it easier to understand how profitable the company is and estimate how much Corporation Tax may become payable.
Regularly reconciling business bank accounts, recording invoices and receipts, reviewing payroll information and correctly categorising expenses can make the year-end accounting process much easier. It can also help identify missing expenses or accounting errors before they become larger problems.
Many business owners find it useful to set aside money specifically for Corporation Tax as the company earns profits. Maintaining a separate tax reserve can help prevent money needed for HMRC from being accidentally spent on normal operating expenses.
Corporation Tax planning does not mean trying to avoid paying tax that is legitimately due. Effective tax planning involves understanding the rules, claiming available expenses and reliefs correctly, maintaining appropriate records and ensuring the company pays the correct amount of tax at the correct time.
Depending on your company’s activities, additional Corporation Tax reliefs or allowances may also be available. The rules can become more complicated where a company owns significant assets, has associated companies, operates internationally, makes investments or has unusual sources of income.
Keeping accurate financial records and reviewing your tax position regularly can help you make better business decisions while reducing the risk of unexpected Corporation Tax liabilities, filing penalties or interest.
At EasyFig, we help UK limited companies manage their bookkeeping, annual accounts and Corporation Tax responsibilities. We can help review your business expenses, calculate taxable profits, prepare your company accounts and ensure your Corporation Tax obligations are dealt with accurately and on time.
Book a free consultation with EasyFig today and make managing your company’s Corporation Tax simpler.