, , , ,

When is corporation tax due? A guide to UK corporation tax

HM Revenue & Customs building

UK limited companies pay corporation tax on their profits. But what is corporation tax, when is corporation tax due, and what are the rates?

What is corporation tax?

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).

What income does a limited company pay corporation tax on?

A company needs to pay corporation tax on:

  • the profits it makes from doing business (‘trading profits’)
  • its investments
  • selling assets for more than they cost (‘chargeable gains’)

Company assets include land and property, equipment and machinery, plus company shares.

How to register for corporation tax

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:

  • buying
  • selling
  • advertising
  • renting a property
  • employing someone

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.

What are the corporation tax rates?

The corporation tax rate for company profits is between 19 per cent and 25 per cent, depending on how much profit a business makes.

How much is corporation tax for a limited company?

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.

Corporation tax rates 2023-24

The way businesses pay corporation tax changed on 1 April 2023.

  • businesses with profits of £50,000 or less pay corporation tax at 19 per cent
  • businesses with profits above £250,000 pay corporation tax at 25 per cent
  • business with profits between £50,000 and £250,000 pay corporation tax at between 19 per cent and 25 per cent

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.

When do you pay corporation tax?

This is where things get complicated, because the corporation tax payment deadline differs from other taxes, and depends on your accounting period:

  • you need to pay corporation tax before you file your company tax return
  • the deadline to pay is nine months and one day after the end of your accounting period for your previous financial year – so if your accounting period ends on 31 March, your corporation tax deadline is 1 January
  • but you need to prepare your company tax return to work out how much corporation tax to pay – even though the deadline to file your company tax return is later (12 months after the end of the accounting period it covers)

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.

What are the corporation tax allowances?

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:

  • mileage
  • accommodation
  • training

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.

What are the corporation tax reliefs?

There are corporation tax reliefs available that you could use to minimise your corporation tax bill:

  • Research and Development (R&D) relief: you may be able to claim this if your company works on innovative projects in science and technology
  • The Patent Box: a lower rate of corporation tax is available on profits earned from patented inventions and certain other innovations
  • Creative industry tax reliefs: this allows companies in the creative industries (such as film, television, and video gaming) to claim a larger deduction when calculating taxable profits
  • Disincorporation Relief: a relief that allows a company to transfer assets to its shareholders (for instance when it changes from a limited company to a sole trader or partnership) without the company incurring a corporation tax charge on the disposal of those assets
  • Terminal, capital and property income losses, and trading losses: you could be eligible if you make a loss from trading, the sale or disposal of a capital asset or on property income
  • Marginal Relief: this may be available if your company had profits between £300,000 and £1.5 million that were from before 1 April 2015. As of 1 April 2023, it can be used by companies with profits between £50,000 and £250,000 to calculate their effective corporation tax rate between 19 per cent and 25 per cent

Read more about tax reliefs for small businesses.

How to pay corporation tax

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.

Corporation tax calculator

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:

  • annual revenue
  • gross salary (excluding National Insurance)
  • annual expenses
  • annual pension contributions.

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.

What about the cost of living crisis and corporation tax?

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.

Tax guides for small businesses and the self-employed

Ready to set up your cover?

As one of the UK’s biggest business insurance providers, we specialise in public liability insurance and protect more trades than anybody else. Why not take a look now and build a quick, tailored quote?

pxl.store/adobe.stock.com

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.

This block is configured using JavaScript. A preview is not available in the editor.