Corporation tax is one of the most significant financial obligations facing any UK limited company. Every company that trades or generates profit must deal with it, and getting to grips with how it works lets directors manage their finances and stay compliant. Corporation tax is one of those subjects that sounds straightforward until you have to deal with it; this is why we created this guide covering the rates, the calculations, the deadlines and the bits that catch people out.
- Corporation tax is paid by companies on taxable profits, including trading income, investment income, and gains on assets, not simply cash left in the bank.
- All active UK limited companies must register for corporation tax with HMRC within three months of becoming active, using their Companies House details.
- From 2026, corporation tax uses tiered rates with small profits, marginal relief, and main rate bands, adjusted where companies have associated entities.
- Taxable profit differs from accounting profit, as HMRC adjusts for allowable expenses, capital allowances, Annual Investment Allowance and Full Expensing rules.
- Company Tax Returns must be filed annually, with strict filing and payment deadlines, automatic penalties for lateness, and a six-year record-keeping requirement.
What is Corporation Tax?
Corporation tax is a tax levied by HM Revenue and Customs (HMRC) on the taxable profits of UK limited companies and certain other entities. Unlike income tax, which is paid by individuals, corporation tax is paid by the business itself. It applies to profits from trading activities, investments, and gains from selling assets.
The tax applies to private limited companies incorporated in the UK, to foreign companies with a UK branch or permanent establishment, and to organisations such as members’ clubs, housing associations and co-operatives. What counts as a profit for corporation tax purposes is not the money left in a company’s bank account. Taxable profit is calculated after deducting allowable business expenses, capital allowances and certain reliefs.
Who must pay Corporation Tax?
Corporation tax applies to all active UK limited companies. A company becomes active from the moment it begins trading, receives income, or incurs business expenses. Even a newly incorporated company with no revenue can reach that threshold by carrying out preparatory work, hiring staff, or opening a business bank account.
Sole traders and traditional partnerships are not subject to corporation tax; their owners pay income tax on business profits through Self Assessment instead. Directors and shareholders of limited companies should understand that corporation tax is a liability of the company, not of them personally, though directors are legally responsible for ensuring the company meets its obligations accurately and on time.
Registering for Corporation Tax
Every new limited company must register for corporation tax with HMRC within three months of becoming active. Missing this deadline results in automatic penalties.
Registration is completed online through HMRC’s Government Gateway. You will need your company’s 10-digit Company Registration Number from Companies House, the start-of-trading date, and your accounting period details. Once registered, HMRC issues a Unique Taxpayer Reference (UTR), a 10-digit number used on all tax correspondence. Forming a company with Companies House and registering for corporation tax are two quite distinct steps: incorporation creates the legal entity, while corporation tax registration registers the company with HMRC for tax purposes. Neither automatically triggers the other.
What are the current Corporation Tax rates as of 2026?
The UK operates a tiered corporation tax system based on a company’s annual taxable profits. As of 2026, the current corporation rates apply:
| Profit level | Corporation tax rate |
|---|---|
|
Up to £50,000 |
19% (small profits rate) |
|
£50,001 to £250,000 |
Marginal relief applies |
|
Over £250,000 |
25% (main rate) |
The small profits rate of 19% applies to companies with profits up to £50,000. The main rate of 25% applies above the upper threshold, and marginal relief covers the band in between. These thresholds apply to a standalone company. If a company has associated companies under common control, the thresholds are divided among all of them. A company with two associates, for example, sees both limits divided by three.
What is Marginal Relief?
Marginal relief prevents a sudden jump from 19% to 25% once profits cross the lower threshold. Rather than switching to the full main rate immediately, the effective rate increases gradually across the band from £50,000 to £250,000.
Marginal relief cannot be claimed by non-UK resident companies or close investment holding companies, and it does not apply where augmented profits exceed £250,000. HMRC provides an online marginal relief calculator for companies wishing to estimate the relief available.
What is the Accounting Reference Date?
A company’s accounting reference date (ARD) is the final day of its financial year. Companies House sets it automatically as the last day of the month in which the company was incorporated, so a company formed on 14 May will have an ARD of 31st May in subsequent years.
The ARD determines the end of your corporation tax accounting period, which sets both the filing and payment deadlines. A corporation tax accounting period cannot exceed 12 months. If a company changes its ARD or has a longer first period, it may need to file two separate returns covering the split periods. The ARD can be shortened at any time or extended once every five years, but any change moves every deadline that follows it.
How is Taxable Profit Calculated?
Taxable profit for corporation tax is not the same as the net profit in a company’s financial statements. HMRC takes the reported net profit and adjusts it in line with tax law.
Allowable business expenses are deducted to reduce taxable profit. These are costs incurred wholly and exclusively for business purposes: staff salaries, office costs, professional fees, business travel and insurance. Personal expenses, client entertainment and fines cannot be deducted. The adjusted figure is then further reduced by capital allowances. The Annual Investment Allowance (AIA) allows a 100% deduction of qualifying expenditure up to £1 million per year. Full Expensing, introduced in 2023, extends 100% deductions to qualifying new plant and machinery for incorporated businesses, with no annual cap.
Filing the Company Tax Return
A company must file a Company Tax Return (CT600) with HMRC every year, even if it made no profit or no tax is due. The return sets out the company’s income, expenses and the corporation tax calculation for that accounting period.
The filing deadline is 12 months after the end of the accounting period. The payment deadline is earlier: 9 months and 1 day after the period ends. Mixing up the two is a common mistake, and it can result in interest charges even where the return itself is filed on time. It is important to understand each of the steps involved in preparing your company’s tax return.
Corporation Tax Penalties for Late Filing
HMRC applies late filing penalties to the CT600 automatically when it is submitted after the 12-month deadline:
| How late | Penalty |
|---|---|
|
1 day late |
£100 |
|
3 months late |
Additional £100 |
|
6 months late |
Additional 10% of unpaid corporation tax |
|
12 months late |
Further 10% of unpaid corporation tax |
If a company files late for three consecutive periods, the flat penalties increase to £500 each. For late payment, HMRC charges daily interest from the day after the payment deadline. From 6th April 2025, the rate is the Bank of England base rate plus 4 percentage points, currently 8.5% per year.
Tax Planning for Limited Companies
Corporation tax planning starts with claiming every allowable deduction to which the company is entitled. Good record-keeping, consistent expense capture, and timely use of capital allowances are all worth building into the company’s annual routine. Companies can also time the recognition of income and expenditure around accounting periods, make employer pension contributions (which are deductible as a business expense), use loss relief to carry forward or carry back losses against profitable periods, and donate to registered charities.
For companies investing in qualifying research and development, the SME R&D scheme allows a significant proportion of costs to be deducted or surrendered for a payable credit. Identifying which expenditure qualifies requires careful documentation and a working knowledge of HMRC’s eligibility criteria. The guidance of an accountant can reduce the tax bill considerably, particularly in the first few years of trading when reliefs are most likely to be missed. R&D claims in particular are frequently underclaimed or filed incorrectly without specialist input.
How Corporation Tax Fits into the Wider Tax Picture
Corporation tax is one of several taxes a limited company will deal with. Others include VAT, employers’ National Insurance contributions on staff payrolls, business rates on commercial premises, and dividend tax when profits are distributed to shareholders. Each operates on its own rules and timetable.
It is important to understand how UK business taxation works across all entity types, including sole traders and partnerships, including income tax, National Insurance, and capital gains tax. By doing so, you can gain a better understanding of how much tax your UK limited company will need to pay, including often overlooked costs of employer NIC and business rates.
Keeping Records for Corporation Tax
HMRC requires limited companies to keep accounting records that support every figure on the CT600. This includes records of all money received and spent, details of assets owned by the company, and documentation for any liabilities. Supporting records must be kept for at least six years from the end of the accounting period they relate to.
This means keeping bank statements, invoices, receipts, payroll records and any calculations used to arrive at the figures in the return.
Final Words
Corporation tax involves a tiered rate system, firm registration and filing deadlines, and specific rules for calculating what counts as profit. Some of the details change year to year, but the obligations do not change: register on time, file accurately, pay by the deadline, and keep records that support every figure on the return.
Tags: Accounting, HMRC, Tax
