Corporation Tax is the tax that limited companies pay on their taxable profits. If your company makes a profit in any accounting period, it owes Corporation Tax to HMRC on that profit. Unlike Income Tax, which is collected through Self Assessment or PAYE, Corporation Tax is calculated and paid by the company itself.
This guide explains how Corporation Tax works, what the current rates are, what you can deduct to reduce your bill, and what deadlines apply.
Who Pays Corporation Tax?
Corporation Tax applies to:
- UK limited companies
- Foreign companies with a UK branch or permanent establishment
- Members’ clubs, societies, and associations
- Co-operatives and housing associations
Sole traders and partnerships do not pay Corporation Tax. They pay Income Tax on their profits through Self Assessment instead. Corporation Tax applies specifically to incorporated entities.
Corporation Tax Rates for 2024/25
| Profit Level | Corporation Tax Rate | Notes |
| Up to £50,000 | 19% (Small Profits Rate) | Applies to companies with profits at or below the lower threshold |
| £50,001 to £250,000 | 19% to 25% (Marginal Relief) | Effective rate increases gradually between the two thresholds |
| Above £250,000 | 25% (Main Rate) | Full main rate applies above the upper threshold |
Marginal Relief applies to companies with profits between £50,000 and £250,000. It gradually increases the effective tax rate from 19% to 25% across that range, so there is no cliff edge at either threshold.
The thresholds are divided by the number of associated companies. If your company has one associated company, each company’s threshold is halved: the small profits rate applies up to £25,000 and the main rate applies above £125,000.
| Associated companies and the threshold Two companies are associated if one controls the other, or both are controlled by the same person or group. If you own two limited companies, both thresholds are halved for each company. This is worth understanding before setting up multiple companies. |
What Is Taxable Profit for Corporation Tax?
Corporation Tax is charged on taxable profit, which is not the same as your accounting profit. Taxable profit is calculated by taking your accounting profit and making the following adjustments:
Deductions that reduce taxable profit
- Salaries and wages paid to employees and directors
- Employer National Insurance contributions
- Pension contributions made by the company
- Cost of goods sold and direct business costs
- Rent, utilities, and office costs
- Professional fees including accountancy
- Marketing and advertising costs
- Bank charges and loan interest
- Capital allowances on equipment and vehicles
- Research and Development (R&D) relief if applicable
Items that do NOT reduce taxable profit
- Dividends paid to shareholders (these come from post-tax profit)
- Entertainment of clients (not allowable by HMRC)
- Fines and penalties
- Depreciation of assets (replaced by capital allowances)
- Personal expenses that are not wholly and exclusively for the business
Capital Allowances: How Equipment Reduces Your Tax Bill
When your company buys equipment, machinery, or vehicles for business use, you cannot deduct the full cost as an expense in the year of purchase in your accounts. Instead, you claim capital allowances, which allow you to deduct the cost of assets against your taxable profit.
The main capital allowance for small businesses is the Annual Investment Allowance (AIA), which allows you to deduct the full cost of qualifying assets up to £1,000,000 in the year of purchase. This means buying a piece of equipment costing £10,000 reduces your taxable profit by £10,000 in that year.
| Allowance Type | Rate | What It Covers |
| Annual Investment Allowance (AIA) | 100% in year of purchase | Most plant and machinery up to £1,000,000 per year |
| First Year Allowance | 100% | New zero-emission vehicles and certain energy-efficient equipment |
| Writing Down Allowance (main pool) | 18% per year | Assets not covered by AIA or FYA |
| Writing Down Allowance (special rate pool) | 6% per year | Long-life assets and integral building features |
Corporation Tax Deadlines
| Deadline | What Must Be Done |
| 9 months and 1 day after accounting year end | Pay Corporation Tax owed to HMRC |
| 12 months after accounting year end | File Corporation Tax return (CT600) with HMRC |
| 9 months after accounting year end | File annual accounts with Companies House |
| Within 3 months of starting to trade | Register for Corporation Tax with HMRC |
Note that the payment deadline (9 months and 1 day) is earlier than the filing deadline (12 months). This means you must calculate and pay your Corporation Tax before you formally submit the return. Late payment attracts interest from HMRC at the current rate.
Large companies with profits above £1.5 million pay Corporation Tax in quarterly instalments throughout the accounting year rather than as a single payment after the year end.
How to Reduce Your Corporation Tax Bill Legally
There are several legitimate ways to reduce your company’s Corporation Tax liability:
Maximise director salary
A director’s salary is a deductible business expense that reduces the company’s taxable profit. Most directors pay themselves a salary up to or near the personal allowance level (£12,570 in 2024/25). This reduces the company’s Corporation Tax bill while keeping the director’s personal Income Tax at zero.
Make pension contributions through the company
Employer pension contributions are a deductible business expense. Contributing to a pension directly from the company reduces taxable profit pound for pound and is one of the most tax-efficient ways for a director to save for retirement.
Claim all allowable expenses
Many small companies under-claim expenses. Every legitimate business expense that is wholly and exclusively for business purposes should be claimed. Common overlooked expenses include home office costs, professional subscriptions, training, and the business proportion of phone and broadband costs.
Use capital allowances on equipment purchases
If your company plans to buy equipment or vehicles, timing the purchase before the accounting year end allows you to claim the Annual Investment Allowance in the current year, reducing your Corporation Tax bill for that period.
Claim R&D Tax Credits if applicable
Companies that spend money on qualifying research and development activities can claim R&D Tax Credits, which can significantly reduce their Corporation Tax bill or even generate a cash repayment. The definition of qualifying R&D is broader than many companies realise and is worth investigating if your company develops new products, processes, or software.
Frequently Asked Questions
When does a limited company start paying Corporation Tax?
A limited company becomes liable for Corporation Tax as soon as it starts trading and making taxable profits. You must register for Corporation Tax with HMRC within three months of starting to trade. HMRC will then send you a Unique Taxpayer Reference for the company.
What is the Corporation Tax rate for small companies in 2024/25?
Companies with taxable profits up to £50,000 pay Corporation Tax at 19% (the Small Profits Rate). Companies with profits above £250,000 pay 25% (the Main Rate). Companies with profits between £50,000 and £250,000 pay an effective rate between 19% and 25% through Marginal Relief.
Do I pay Corporation Tax on dividends I take from my company?
No. Dividends are paid from the company’s post-tax profit. The company has already paid Corporation Tax on those profits before the dividend is declared. You pay personal dividend tax on dividends you receive through your Self Assessment return, but the company does not pay additional Corporation Tax on dividends.
Can I carry forward Corporation Tax losses?
Yes. If your company makes a taxable loss in an accounting period, that loss can be carried forward and offset against taxable profits in future periods. Losses can also be carried back one year and offset against the previous year’s profits, which may generate a repayment of Corporation Tax already paid.
What is a CT600?
A CT600 is the Corporation Tax return form that all limited companies must file with HMRC each year. It summarises the company’s income, deductions, and tax liability for the accounting period. It must be filed within 12 months of the company’s accounting year end, along with the company’s statutory accounts.
Need Help With Your Corporation Tax Return?
M&B Tax Services prepares Corporation Tax returns and annual accounts for limited companies across the UK. We make sure every deduction is claimed, your return is filed on time, and your tax bill is as low as it legally can be.
We are ICB-regulated accountants based in Rugby. We deal with HMRC so you can focus on running your business.
Book a free 30-minute call and we will review your company’s tax position at no cost.
Joanna Bruty
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