What is Corporation Tax in the UK?

Corporation Tax is the tax that limited companies, and some other types of organisation, pay on their profits. It applies to money made from trading, from investments, and from selling assets at a gain. There’s no bill posted out automatically the way there might be with some personal taxes; a company has to work out what it owes for the year and tell HMRC itself, then pay by a set deadline.

For most UK businesses that means directors carry the responsibility personally, even if an accountant handles the detail. Understanding the basics, who’s liable, what the rates are, and when payments and returns are due, makes that responsibility a lot less daunting.

Who Has to Pay Corporation Tax?

Corporation Tax applies to UK limited companies, and to a handful of other organisations that operate in a similar way: clubs, co-operatives and unincorporated associations that are running as a business, and UK branches of foreign companies. If your business is set up as a limited company, this is the tax that applies to its profits. There’s no tax-free threshold to use up first.

Sole traders and people in an ordinary partnership sit outside this system entirely. They pay Income Tax on their business profits instead, through Self Assessment, along with National Insurance. That’s one of the practical differences that pushes some growing businesses to consider incorporating in the first place, our guide to how different UK business structures are taxed covers the comparison in more depth.

Corporation Tax vs Income Tax

It’s easy to conflate the two, particularly if you’ve moved from being a sole trader to running a limited company, but they work quite differently. A sole trader is taxed personally on everything the business earns. A limited company is a separate legal entity, so it pays Corporation Tax on its own profits, and then, separately, the director pays Income Tax and National Insurance on whatever salary and dividends they actually draw from the company. In effect, a company’s profits can be taxed twice: once at company level, and again when money is taken out personally.

Companies also tend to have other obligations sitting alongside Corporation Tax. Employer National Insurance applies once you’re paying staff above a certain threshold, and VAT becomes relevant once your taxable turnover passes the registration threshold (or if you register voluntarily below it). Neither of these is Corporation Tax, but they’re often managed together as part of a company’s overall tax position, which is why it’s worth being aware of them even on a page that’s primarily about Corporation Tax itself.

Registering for Corporation Tax

Registering a company and registering it for Corporation Tax aren’t always the same step, which catches some new directors out. If you register your company online through Companies House, it’s usually set up for Corporation Tax automatically, unless it’s dormant. If that doesn’t happen, or if you’re not sure whether it has, you can add Corporation Tax as a service through your company’s business tax account using its Government Gateway details.

Either way, HMRC needs to know your company is trading within three months of it starting to do business, which includes buying, selling, advertising, renting premises or taking on staff. Once you’re registered, HMRC issues a ten-digit Unique Taxpayer Reference, or UTR, sent to your company’s registered office address. You’ll need this UTR every time you deal with HMRC about Corporation Tax, so it’s worth keeping somewhere safe rather than digging through old post for it later. GOV.UK has the full step-by-step registration process if you want to work through it directly.

Corporation Tax Rates

For a company with no associated companies and a standard 12-month accounting period, there are two headline rates. The main rate is 25%, and it applies once profits go above £250,000. The small profits rate is 19%, and it applies where profits are £50,000 or less. Between those two figures, a mechanism called Marginal Relief tapers the rate gradually rather than jumping straight from 19% to 25%. Marginal Relief also isn’t available to every company: non-UK resident companies and close investment-holding companies fall outside it, regardless of their profit level.

Both the £50,000 and £250,000 limits shrink if your accounting period is shorter than 12 months, and they’re also divided between any companies you’re associated with, so a company with three associated companies would be working with a quarter of each limit, not the full amount. These adjustments matter for group structures and shorter first-year accounting periods, so it’s worth flagging to your accountant if either applies to you.

Marginal Relief Explained

Marginal Relief exists so that a company just over the £50,000 threshold doesn’t suddenly jump to a 25% tax rate on its whole profit. Instead, profits between £50,000 and £250,000 are charged at the main rate and then reduced by a calculated amount of relief, using what HMRC calls the standard fraction, currently 3/200.

For a company with no associated companies, no exempt dividends from outside its group, and a normal 12-month accounting period, the calculation simplifies to: take the difference between £250,000 and your profits, and multiply it by 3/200.

As an example: a company with £150,000 of profit would be charged £37,500 at the main rate (25% of £150,000). Marginal Relief on that is 3/200 × (£250,000 − £150,000), which comes to £1,500. Subtracting that gives a final Corporation Tax bill of £36,000, an effective rate of 24%. That’s a helpful illustration of how the mechanism works, but it only holds under those specific assumptions; a company with associated companies, a shorter accounting period, or exempt dividends coming in would see a different figure.

How Corporation Tax Is Calculated

Taxable profit isn’t just what’s left in the bank account at year end. It’s made up of trading profits, any investment income the company has received, and chargeable gains from selling assets such as property, equipment or shares. From that total, the company can deduct allowable business costs, the things it’s genuinely spent running the business.

One point that trips people up: standard accounting depreciation isn’t deducted in the same way for Corporation Tax purposes. Instead, companies generally use capital allowances, which follow their own rules for how quickly the cost of an asset can be written off against profit. It’s worth checking what counts as an allowable business expense before assuming a cost qualifies, since HMRC’s rules aren’t always as broad as people expect.

Filing Your Company Tax Return (CT600)

Once your accounting period ends, you’ll need to file a Company Tax Return; the form itself is called a CT600, within 12 months of that period ending. This applies even if the company made a loss or has no Corporation Tax to pay; HMRC still expects the return. Returns, along with the accompanying accounts and tax computations, are filed electronically.

It’s worth keeping the filing deadline and the payment deadline separate in your mind, because they’re not the same date, and mixing them up is a common source of confusion. GOV.UK sets out the full detail on Company Tax Returns if you want to see the requirement in full.

How to Pay Corporation Tax

The payment deadline comes before the filing deadline, which surprises some first-time directors. You need to pay what you owe nine months and one day after the end of your accounting period, even though you have a further three months after that to actually submit the return.

Paying by Instalments for Larger Companies

Most SMEs simply pay their Corporation Tax bill in one go by the deadline above. Larger companies work differently: once profits go above £1.5 million a year, Corporation Tax is normally paid quarterly in instalments rather than as a single payment, with different timing again for companies with profits above £20 million. If your company is approaching either threshold, this is a conversation worth having with your accountant well before the accounting period ends, since the instalment calculations get more involved for group structures.

What Happens If You File or Pay Late?

Late filing penalties

Missing the filing deadline triggers an automatic penalty, even by a single day. Currently, that’s £200 for filing up to three months late, rising to £400 in total if it’s still outstanding after three months. If your return is six months late, HMRC will estimate your Corporation Tax bill and add a penalty of 10% of the unpaid amount, with a further 10% added at twelve months. If you’re late filing three times in a row, the flat penalties increase to £1,000 each rather than £200.

Late payment and interest

Paying late is a separate issue from filing late, and it carries its own consequences. HMRC charges interest on any Corporation Tax paid after the due date, calculated from the date payment was due until the date it’s actually received. If a company is struggling to pay on time, it’s generally worth contacting HMRC directly to discuss the position rather than letting the debt sit unpaid.

Penalties for getting your return wrong

Separately from late filing, HMRC can charge a penalty if a Company Tax Return turns out to be inaccurate. The size of the penalty depends on the potential tax lost as a result, and on why the mistake happened, whether it was careless, deliberate, or deliberate and concealed, and on whether you told HMRC about it before or after they found it themselves. If you took reasonable care and still got something wrong, HMRC generally won’t charge a penalty at all. You can find the official guidance on Corporation Tax penalties for the full detail.

Deductions, Allowances and Reliefs

Beyond ordinary allowable expenses, there are several reliefs worth knowing about. The Annual Investment Allowance lets a company deduct the full cost of most plant and machinery, up to £1,000,000 a year, in the year it’s bought. Where spending goes beyond that, or doesn’t qualify, writing down allowances apply instead, giving a percentage deduction each year, currently 14% for the main pool of assets and 6% for the special rate pool.

Many companies also qualify for full expensing, which allows a 100% first year deduction on qualifying main pool plant and machinery, with a 50% first-year allowance for special-rate assets, both are now permanent reliefs rather than time-limited ones. You may still come across references to the “super-deduction,” a more generous 130% relief that applied between April 2021 and March 2023; it’s no longer available, but it’s worth recognising the term if you’re looking at older accounts or advice.

Research and development costs can also qualify for R&D tax relief, which works differently again and is worth exploring separately if your company does genuinely innovative technical work, see our R&D tax relief guide for how the current scheme operates.

How to Reduce Corporation Tax Legally

There’s a real difference between avoiding tax through legitimate planning and simply getting your return wrong, and most directors want to stay firmly on the right side of that line. In practice, that usually means making sure you claim every allowable expense you’re entitled to, using capital allowances properly when you invest in equipment, checking whether reliefs like R&D apply to your work, and considering pension contributions as a tax-efficient way to reward yourself or your team. None of this requires anything unusual. It’s mostly about not leaving money on the table through oversight. Our guide to legal ways to reduce your Corporation Tax bill goes through the options in more detail.

Frequently Asked Questions

When is Corporation Tax due?

Nine months and one day after the end of your company’s accounting period, before the filing deadline for your return.

When is a Company Tax Return due?

Twelve months after the end of the accounting period it covers, even if there’s no tax to pay.

Do sole traders pay Corporation Tax?

No. Sole traders and ordinary partnerships pay Income Tax and National Insurance on their profits through Self Assessment. Corporation Tax only applies to limited companies and similar organisations.

What happens if a Company Tax Return is late?

You’ll be charged an automatic penalty starting at £200, increasing the longer it remains outstanding, with percentage-based penalties added if it’s still unfiled after six and twelve months.

If you’re not sure how much Corporation Tax your company should be paying, whether Marginal Relief applies to you, or what you can legitimately claim against your profits, it’s usually worth getting a second opinion before you file rather than after. IBISS & CO’s Corporation Tax team can review your position, help with your CT600, and make sure you’re not missing reliefs you’re entitled to.

Asim Hussain

Asim Hussain is a senior accountancy professional at IBISS & CO, having joined the firm in 2014.
He leads the accountancy team and specialises in financial planning, business growth strategies, UK accounting standards, Companies Act compliance and HMRC requirements. His experience spans a wide range of sectors, including telecoms, transport, healthcare and fashion.
Last reviewed: August 2026

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