What Is Corporation Tax?
Corporation Tax is the tax UK limited companies pay on their taxable profits. Unlike income tax for individuals, Corporation Tax is calculated on the company's profits for each accounting period — typically a 12-month financial year aligned with your Companies House year-end.
All UK limited companies must register for Corporation Tax with HMRC within 3 months of starting to trade. This includes companies that are dormant but have taxable income, such as investment income or capital gains.
💡 Key Point
Corporation Tax applies to all UK resident companies and foreign companies with a UK permanent establishment. You must register even if your company makes a loss — losses can be carried forward to offset future profits.
Who Needs to Pay Corporation Tax?
Corporation Tax applies to the following entities:
- Limited companies (private and public)
- Foreign companies with a UK branch or permanent establishment
- Clubs, co-operatives, and unincorporated associations carrying on business
- Community Interest Companies (CICs)
Sole traders and partnerships do not pay Corporation Tax — they pay Income Tax through Self Assessment instead.
Corporation Tax Rates 2025/26
Since April 2023, Corporation Tax operates on a two-tier rate structure. These rates remain in effect for the 2025/26 tax year:
| Profit Band | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 – £250,000 | 26.5%* | Marginal Relief applies |
| Over £250,000 | 25% | Main rate |
*The effective marginal rate for profits between £50,000 and £250,000 is approximately 26.5% due to Marginal Relief tapering. The thresholds are divided by the number of associated companies.
⚠️ Associated Companies
If you control multiple companies, the profit thresholds are divided equally between them. Two associated companies means each has a small profits threshold of £25,000 and main rate threshold of £125,000.
Key Corporation Tax Deadlines
Corporation Tax has two critical deadlines that every UK company director must know:
💰 Payment Deadline
9 months + 1 day
After your accounting period end date. Pay via HMRC's online service, BACS, or direct debit.
📄 CT600 Filing Deadline
12 months
After your accounting period end date. File online using HMRC-approved software with iXBRL-tagged accounts.
Example Timeline
For a company with a year-end of 31 March 2026:
- 1 January 2027 — Corporation Tax payment due (9 months + 1 day)
- 31 March 2027 — CT600 return filing deadline (12 months)
- 31 December 2026 — Companies House annual accounts due (9 months)
💡 Large Company Instalments
Companies with profits over £1.5 million (or £10 million for "very large" companies) must pay Corporation Tax in quarterly instalments during the accounting period, rather than 9 months after year-end.
Filing Your CT600 Return
The CT600 is the Corporation Tax return that every UK company must file with HMRC. Here's what you need:
Required Information
- Company UTR (Unique Taxpayer Reference)
- Statutory accounts (profit & loss, balance sheet)
- Tax computations adjusting accounting profit to taxable profit
- Details of capital allowances claimed
- Information on dividends, loans to directors, and related-party transactions
- iXBRL-tagged accounts (required for online filing)
How to File
CT600 returns must be filed electronically using HMRC-approved commercial software. You cannot file a paper return. Popular options include:
- HMRC's free filing software — suitable for simple returns
- Commercial accounting software (Xero, FreeAgent, Sage) — most include CT600 filing
- Your accountant — files on your behalf using agent software
Allowable Business Expenses
To reduce your Corporation Tax bill, you can deduct expenses that are incurred "wholly and exclusively" for business purposes. Common allowable expenses include:
Running Costs
- Office rent and utilities
- Staff salaries and pensions
- Insurance premiums
- Professional subscriptions
- Accountancy and legal fees
Operating Expenses
- Stock and raw materials
- Marketing and advertising
- Travel and subsistence
- Software and IT costs
- Bad debts written off
⚠️ Not Allowable
Entertainment of clients, dividends paid, personal expenses, and fines/penalties are not deductible for Corporation Tax purposes. Capital expenditure is generally not deductible either — but may qualify for capital allowances.
Capital Allowances & R&D Relief
Annual Investment Allowance (AIA)
The AIA allows businesses to deduct the full cost of qualifying plant and machinery up to £1 million per year. This includes office equipment, vehicles, tools, and computer hardware.
Full Expensing
Since April 2023, companies can claim a 100% first-year deduction on qualifying new plant and machinery investments with no upper limit. This is a permanent measure and applies to main rate assets.
R&D Tax Relief
From April 2024, the merged R&D scheme provides a single above-the-line credit. Key features:
- 20% above-the-line credit for all qualifying companies
- R&D-intensive SMEs (40%+ of expenditure on R&D) receive enhanced support
- Claims must be supported by a detailed technical narrative
- Must notify HMRC in advance if claiming for the first time or after a gap
Late Filing & Payment Penalties
HMRC imposes penalties for both late filing of the CT600 return and late payment of Corporation Tax:
Late Filing Penalties
| How Late | Penalty |
|---|---|
| 1 day late | £100 |
| 3 months late | Another £100 |
| 6 months late | 10% of unpaid tax (estimated by HMRC) |
| 12 months late | Additional 10% of unpaid tax |
If your CT600 is filed late three times in a row, the initial £100 penalties increase to £500 each.
Late Payment Interest
HMRC charges interest on Corporation Tax paid after the due date. The current late payment interest rate is set at base rate + 2.5%. Interest accrues daily from the payment due date until the date the tax is paid in full.
Common Mistakes to Avoid
Missing the payment deadline
The payment deadline (9 months + 1 day) is earlier than the filing deadline (12 months). Many directors confuse the two and pay late.
Not claiming all allowable expenses
Failing to claim legitimate business expenses means paying more tax than necessary. Keep meticulous records throughout the year.
Ignoring associated company rules
The small profits thresholds are divided by the number of associated companies. Ignoring this can lead to underpayment.
Forgetting to register for Corporation Tax
New companies must register within 3 months of starting to trade. Late registration can result in penalties and missed deadlines.
Director's loan account issues
Overdrawn director's loan accounts (Section 455 tax) and benefit-in-kind charges are commonly overlooked, leading to unexpected tax liabilities.
Not planning for year-end
Last-minute tax planning is less effective. Consider pension contributions, capital purchases, and dividend vs salary mix well before year-end.
Conclusion
Corporation Tax is one of the most significant obligations for UK limited companies. Understanding the rates, deadlines, and available reliefs can save your business thousands of pounds each year. The key is preparation — know your deadlines, keep records throughout the year, and work with your accountant well in advance of filing dates.
Use TaxOnTime's deadline generator to create a personalised calendar with your Corporation Tax payment and filing dates, alongside all your other HMRC and Companies House obligations. Never miss a deadline again.
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