5-minute read
UK limited companies pay corporation tax on their profits. But what is corporation tax, when is it due, and what are the rates?
Corporation tax in the UK is a tax that limited companies need to pay on their profits.
Corporation tax is essentially an income tax for companies, but the difference is that companies don’t have a personal allowance.
You meet the corporation tax threshold as soon as your business starts making a profit. At this point, you’ll need to start paying corporation tax at the relevant rate (unless your business has previously made losses).
A company needs to pay corporation tax on:
Company assets include land and property, equipment and machinery, plus company shares.
Registering for corporation tax with HMRC is one of the first things you should do when setting up your limited company. You can do this on the government website. You have to register within three months of starting to trade, which includes:
If you register late, you may get a penalty, so make sure registering for HMRC corporation tax is at the top of your checklist when starting out.
The corporation tax rate for company profits is between 19 per cent and 25 per cent, depending on how much profit a business makes.
Year | Rate on profits below £300,000 | Main rate on profits above £300,000 |
---|---|---|
2023-2024 | 19% (on profits of £50,00 or less) | 25% (on profits above £250,000) |
2022-2023 | 19% | 19% |
2021-2022 | 19% | 19% |
2020-2021 | 19% | 19% |
2019-2020 | 19% | 19% |
2018-2019 | 19% | 19% |
2017-2018 | 19% | 19% |
2016-2017 | 20% | 20% |
2015-2016 | 20% | 20% |
2014-2015 | 20% | 21% |
You need to pay the rate that applied in your company’s accounting period for corporation tax (the time covered by your company tax return).
You can check your company’s accounting period by signing in to HMRC’s online service. It’ll usually be in line with your company’s financial statements and annual accounts. Most businesses have a 12-month accounting period – your accounting period can’t be longer than 12 months.
The way businesses pay corporation tax changed on 1 April 2023.
It’s important to note that businesses with profits between £50,000 and £250,000 have to pay more than before. This is because they’re charged an effective corporation tax rate (between 19 per cent and 25 per cent) based on how much Marginal Relief they can claim.
The government’s Marginal Relief calculator can help you to work out how much Marginal Relief you can claim and what your effective corporation tax rate would be if your profits fall into this bracket.
This is where things get complicated, because the corporation tax payment deadline differs from other taxes, and depends on your accounting period:
If you've just started your small business, you may have two corporation tax accounting periods, as your accounting period can’t be longer than 12 months.
For example, if you start your business in January, your first accounting period can go up to 31 March, when you’ll start a full 12-month accounting period.
Businesses with more than £1.5 million in profits will need to pay their corporation tax in instalments, so the process is different. And, even if your company is loss-making and you have no corporation tax due, you still need to declare that to HMRC.
Read more about how to file a corporation tax return.
There are some corporation tax allowances available when working out how much tax you owe. You can deduct the costs of running your business from your company’s profits before tax when you prepare your accounts. But, if you or your employees get use from something, it must be treated as a benefit.
Some examples of allowable expenses for limited companies include:
These expenses must be necessary to the business and ‘wholly and exclusively’ for business purposes. This essentially means that you don’t also use them in a personal capacity.
Some costs of running your business aren’t allowed for corporation tax, such as entertaining clients.
Buying business assets that you keep to use in your business, such as equipment, machinery, and vehicles, can’t be deducted from your company’s income when calculating your taxable profit. In these instances, you may be able to claim capital allowances.
There are corporation tax reliefs available that you could use to minimise your corporation tax bill:
Read more about tax reliefs for small businesses.
You pay corporation tax once you’ve worked out how much you owe and when it’s due.
Bear in mind that you need to allow time for your payment to get to HMRC, depending on your payment method:
Payment method | Time needed |
---|---|
Online and telephone banking | Same day/next day |
CHAPS | Same day/next day |
Bacs | Three working days |
Direct Debit | Three working days |
Online by debit or corporate credit card | Three working days |
At your bank or building society | Three working days |
Direct Debit (if you haven’t set one up before) | Five working days |
HMRC has now stopped accepting payments by personal credit card.
Using a limited company tax calculator can be useful as it’s easy to work it out incorrectly on your own. This way, you’ll get a better idea of what you’ll be paying and won’t get an unexpected bill.
Usually, you’ll need details on your business like:
You should try to be proactive with your approach to your corporation tax. Our guide to creating a budget for your small business is a good way of making sure you’re prepared for your tax bill.
If you’re struggling, HMRC has a Time to Pay service that you might be able to use to spread the cost of your tax bill.
So if you haven’t already received a payment demand letter, you should call HMRC on 0300 200 3820 to discuss Time to Pay. If you have received a letter, you can get in touch with the HMRC office that sent you the letter.
Is there anything more you would like to know about corporation tax? Let us know in the comments below.
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Sam Bromley
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
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