Accountant For A Limited Company

What is Corporation Tax in UK?

Corporation tax is a direct tax paid to HMRC on the profits of UK limited companies, foreign companies with a UK branch and members' clubs. For 2025/26, the main rate is 25% on profits above £250,000 and the small profits rate is 19% on profits up to £50,000, with marginal relief between the thresholds. Directors file a CT600 within 12 months and pay 9 months and 1 day after year-end.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 7

Key takeaways

Corporation tax is a direct tax on UK company profits, covering trading income, investment income and chargeable gains on disposals.
The 2025/26 main rate is 25% for profits above £250,000 and 19% for profits up to £50,000, with marginal relief between the two.
Limited companies must file a CT600 return within 12 months of year-end and pay any corporation tax 9 months and 1 day after year-end.
Allowable deductions include wages, rent, utilities, insurance, pension contributions and equipment bought wholly for business use.
Reliefs such as R&D, Patent Box, Creative industries and the £1 million Annual Investment Allowance can materially reduce the tax bill.

Understanding Corporation Tax

Corporation Tax is a direct tax that limited companies pay on their profits (income minus costs) in an accounting period. It is paid to HMRC and applies to profits from trading, investments, and the sale of assets (chargeable gains).

What is Corporation Tax?

Corporation tax in the United Kingdom is a tax on the profits of limited companies, foreign companies with a UK branch or office, and members' clubs and societies. It is a direct tax that is levied on the taxable profits generated by businesses. The taxable profit is calculated by subtracting allowable expenses from the total income.

Here's a brief overview of how corporation tax works:

Taxable Profit: Companies are taxed on their profits, which include income from trading activities, investments, and other sources, minus allowable deductions.
Allowable Deductions: Allowable deductions typically include business expenses that are necessary for the operation of the business, such as employee salaries, rent, utilities, and other costs directly related to generating income.
Tax Rate: The applicable tax rate is then applied to the taxable profit to determine the amount of corporation tax owed. The standard corporation tax rate in the UK is 25%.
Filing and Payment: Companies are required to file an annual corporation tax return with HMRC and pay any tax owed. The tax return provides a detailed breakdown of the company's income, expenses, and taxable profit.

Watch below video from HMRC to find out everything about Corporation Tax - who it applies to, registering, sending returns and paying what you owe:

Who Needs to Pay Corporation Tax?

Private and Public Limited companies
Foreign companies with a UK branch or office
A club, co-operative or other unincorporated association such as community group or sports club

Who is Responsible for Paying Corporation Tax?

The company director or directors are responsible for filing Corporation Tax returns with HMRC. They must also make sure that the corporation tax owed is paid by the deadline, which is usually nine months and one day after the end of the company's accounting period. While some companies hire specialist limited company accountants, the legal obligation still lies with the company directors.

What is the Corporation Tax Rate?

The Corporation Tax Rate refers to the percentage at which a company's profits are taxed by the UK government. It represents the portion of a company's taxable profits that must be paid to the tax authorities. For example, a 25% Corporation Tax Rate means that 25% of a company's taxable profits will be levied as corporate tax. Understanding the Corporation Tax Rate is crucial for businesses to calculate their tax liability and plan their financial strategies accordingly.

Corporation Tax Rates 2025/26

Your company pays Corporation Tax based on the rates applicable during its accounting period.

If profits exceed £250,000, the main Corporation Tax rate i.e 25% applies.

For profits of £50,000 or less, the 'small profits rate' of 19% is used.

If profits fall between £50,000 and £250,000, you might qualify for 'Marginal Relief.'

Adjustments to the £50,000 and £250,000 thresholds occur for short accounting periods and the total number of 'associated companies' your company has.

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What is Corporation Tax Paid On?

Corporation Tax is paid on the taxable profits of a company. Taxable profits are essentially the profits that a company makes during its accounting period, and they serve as the basis for calculating the amount of Corporation Tax owed to the government.

Your company's taxable profits for Corporation Tax include earnings from:

Conducting business (known as 'trading profits')
Investments
Sale of assets at a profit ('chargeable gains')

Corporation Tax Allowances

Corporation Tax allowances are deductions that reduce the taxable profits of a company. Certain business expenses can reduce a company's corporation tax bill. Any cost incurred exclusively for running the business should be subtracted from the company’s profits before calculating tax. A variety of expenses qualify, with the main ones including:

Purchase of raw materials
equipment bought for company use
machinery bought for company use
business vehicles, for example cars, vans, lorries
Office Supplies
Salary of the employees
Business Insurance
Employer pension contributions
Training fees
Accountancy costs

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Corporation Tax Reliefs

Corporation Tax reliefs are incentives provided by the government to encourage certain business activities. Understanding and applying these reliefs can result in substantial tax savings for eligible companies. Some corporation tax reliefs are listed below:

Research and Development (R&D) Relief
Profit from patented inventions
Creative industries relief (CITR) for profits in theatre, film, television, animation, or video games
Disincorporation Relief when closing the company or changing the business structure
Relief on goodwill and relevant assets like customer relationships, unregistered trademarks,
Terminal, capital, or property income losses
Business trading losses

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Corporation Tax Deadline

Companies must file their Corporation Tax return within 12 months of the end of their accounting period. Failure to meet this deadline can result in penalties.

There’s a separate deadline to pay your Corporation Tax bill which is usually 9 months and one day after the end of the accounting period if your taxable profits are less than £1.5 million. If your company’s annual taxable profits are between £1.5 million and £20 million. you can pay corporation tax in installments.

How to Pay Your Corporation Tax Bill?

Companies can make their Corporation Tax payments to HMRC through various methods. Ensure you allocate sufficient time if the deadline is approaching, as some methods may have longer processing times than others.

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Ensure your payment reaches HMRC on the last working day before the deadline if it falls on a weekend or bank holiday.

Corporation Tax Late Filing Penalties

If you don't file company tax return by the deadline, you have to pay late filing penalties:

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If you late file your tax return consecutively for three times, the penalties of £100 each is increased to £500.

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In addition to corporation tax, companies may also be liable for other taxes such as PAYE, National Insurance Contributions and Value Added Tax (VAT). It is important to note that these taxes are separate from corporation tax and must be paid separately.

Handling the complexity of Corporation Tax requires careful attention to detail and a solid understanding of tax regulations. To ensure compliance and maximize potential savings through allowances and reliefs, it is advisable for businesses to hire small business accountants. Their expertise can help businesses manage the complexities of Corporation Tax and stay on top of their financial obligations, ultimately contributing to the overall success and sustainability of the company.

Frequently asked questions

What is the UK corporation tax rate for 2025/26?

For the 2025/26 financial year, the main corporation tax rate is 25% and applies to companies with taxable profits above £250,000. Profits up to £50,000 are taxed at the small profits rate of 19%. Profits between £50,000 and £250,000 fall into the marginal relief band, which produces an effective rate between 19% and 25%. Both thresholds are reduced for short accounting periods and for each associated company.

Who needs to pay corporation tax in the UK?

Corporation tax applies to UK-resident private and public limited companies, foreign companies that have a UK branch or office, and unincorporated associations such as sports clubs, co-operatives and community groups. Sole traders and ordinary partnerships do not pay corporation tax; they report profits through Self Assessment. Directors are legally responsible for registering the company with HMRC, filing the CT600 return and making sure the tax is paid by the deadline, even when an accountant handles the work.

When is corporation tax due and when must the return be filed?

Corporation tax has two separate deadlines. Payment is due 9 months and 1 day after the end of your company's accounting period for companies with profits under £1.5 million, while larger companies with profits between £1.5 million and £20 million pay by quarterly instalments. The CT600 return itself must be filed with HMRC within 12 months of the accounting period end. Most directors prepare the return early so they know the amount to pay before the payment deadline.

What profits are subject to corporation tax?

Corporation tax is charged on a company's taxable profits for the accounting period. This includes trading profits from the core business, investment income such as interest and rental income, and chargeable gains made on the sale of assets like property, shares or goodwill. Profits are calculated by deducting allowable business expenses and capital allowances from total income. Dividends received from other UK companies are usually exempt, so they are not added back into the taxable profit figure.

What expenses can reduce a company's corporation tax bill?

Any cost incurred wholly and exclusively for the trade can be deducted before tax. Typical allowable expenses include employee salaries, employer pension contributions, rent, utilities, business insurance, training, accountancy fees, raw materials and office supplies. Capital purchases such as equipment, machinery and business vehicles are claimed through capital allowances, including the £1 million Annual Investment Allowance. Client entertainment, fines and most personal costs are disallowable and must be added back when calculating taxable profit.

What corporation tax reliefs are available to limited companies?

HMRC offers a number of reliefs that reduce a company's tax bill. Research and Development (R&D) relief rewards qualifying innovation projects, Patent Box applies a reduced 10% rate to profits from patented inventions, and Creative industries relief supports theatre, film, television, animation and video games. Other reliefs cover disincorporation, goodwill, and terminal, capital or property income losses. Trading losses can be carried back one year or forward indefinitely against future profits of the same trade.

What are the penalties for filing a corporation tax return late?

HMRC charges £100 for a return that is even one day late and a further £100 if it is still outstanding three months after the deadline. At six months, HMRC estimates the tax due and adds a 10% tax-geared penalty, with another 10% applied at twelve months. If the return is filed late three accounting periods in a row, the flat penalties rise from £100 to £500 each. Interest is also charged on any tax paid late.

How is corporation tax different from income tax for company directors?

Corporation tax is charged on the profits of the limited company itself, whereas income tax is charged on the personal income that a director receives. A typical director draws a salary through PAYE, which is subject to income tax and National Insurance, and takes dividends from post-tax profits, which are subject to dividend tax on the director's Self Assessment. Corporation tax is calculated and paid first; dividends can only be declared out of profits that remain after it.