What is Corporation Tax?

The basics

Corporation Tax is the tax UK limited companies pay on their profits. It applies to trading profits, investment income, and chargeable gains.

Unlike Self Assessment, the company itself pays the tax — not the directors or shareholders. Directors take money out of the company through salary (subject to PAYE) or dividends (subject to dividend tax personally).

Rates and bands (since April 2023)

• Small profits rate (19%): profits up to £50,000
• Main rate (25%): profits above £250,000
• Marginal relief: a sliding scale between £50,000 and £250,000

The thresholds are divided by the number of associated companies. So if you control two companies, each gets thresholds of £25,000 and £125,000. This catches a lot of small-business owners by surprise.

How taxable profit is calculated

1. Start with accounting profit (from your statutory accounts)
2. Add back disallowed expenses (entertaining, depreciation, certain donations)
3. Deduct capital allowances on assets
4. Deduct any reliefs (loss relief, group relief, R&D)
5. The result is taxable profit; tax is calculated using the rates above

When and how to pay

• Payment: 9 months and 1 day after the end of your accounting period
• Filing the CT600: 12 months after period end (so payment is before filing)
• Pay by Faster Payments, Direct Debit, debit/business credit card, or BACS
• Use your 17-character Corporation Tax payment reference, not your UTR

Quarterly instalments for large companies

Companies with profits above £1.5m (single company) or £20m (group) pay Corporation Tax in four quarterly instalments rather than as a single payment. The thresholds are again divided by the number of associated companies.