Corporation Tax Basics for UK Companies

What corporation tax is and who pays it

Corporation tax is charged on the profits a company or association makes during its accounting period. Taxable profits include money from doing business, known as trading profits, money from investments, and chargeable gains from selling assets for more than they cost. It applies to limited companies, to foreign companies with a UK branch or office, and to clubs, co-operatives, and other unincorporated associations such as community groups and sports clubs.

Where your company is resident matters. A company that is UK-resident pays corporation tax on its worldwide profits. A company that is not resident in the UK but operates here pays only on profits connected with its UK activity. Unlike income tax or VAT, corporation tax has no annual return that HMRC sends you and no personal allowance. The company must calculate what it owes, tell HMRC even if the answer is nothing, and keep the records that support the figure.

One point trips up new directors more than any other: the profit or loss you report for corporation tax is not the same as the profit or loss shown in your annual accounts. Certain costs are not deductible for tax, and some reliefs and allowances change the picture, so the taxable figure has to be worked out separately.

The current rates and thresholds

For the financial years starting 1 April 2024 and 1 April 2025, there are two main rates. The main rate of 25% applies to companies with profits over £250,000. The small profits rate of 19% applies to companies with profits of £50,000 or less. Companies whose profits fall between £50,000 and £250,000 pay at the main rate reduced by marginal relief, which is explained in the next section.

Two adjustments can change where you sit against these thresholds. Both the £50,000 and £250,000 limits are reduced proportionately for accounting periods shorter than twelve months. They are also divided by the total number of associated companies, so if your company is part of a group or under common control with others, the point at which the higher rate bites arrives sooner. It is worth checking your associated company position before assuming you qualify for the small profits rate.

How marginal relief works in between

Marginal relief is what stops the tax rate jumping straight from 19% to 25% the moment your profits pass £50,000. It provides a gradual increase in the effective corporation tax rate between the small profits rate and the main rate for profits between the £50,000 lower limit and the £250,000 upper limit. In practice, you calculate the tax at the full 25% main rate and then subtract the relief, which brings the effective rate below 25%.

The relief is worked out using a standard fraction, which is 3/200 for the financial years starting 1 April 2024 and 1 April 2025. You do not need to memorise the arithmetic, because HMRC provides a free Marginal Relief calculator that does it for you once you enter your profits, your accounting period, and the number of associated companies. The same proportionate reductions for short accounting periods and associated companies apply to the £50,000 and £250,000 limits used in the calculation.

The effect is that profits inside the marginal band carry a higher effective rate than 25% at the margin, which is why the taper exists rather than a simple step. For most owner-managed companies the practical takeaway is straightforward: if your profits sit between the two limits, do not assume either the 19% or the 25% figure, run the calculator instead.

Registering for corporation tax

When you register a company at Companies House, you can often set it up for corporation tax at the same time. If you did not, or if your company was set up another way, you must register separately. The deadline is within three months of starting to do business. Starting to do business, sometimes called becoming active, covers activities such as buying and selling, advertising, renting a property, and employing someone. Registering late can lead to a penalty, so treat the three-month window as a hard limit.

To register you sign in to your company's business tax account and follow the steps there. You will need your company's ten-digit Unique Taxpayer Reference, or UTR, which HMRC posts to your registered office address within a few days of the company being incorporated at Companies House. Keep that letter safe, because you will use the UTR for everything you do with HMRC on corporation tax from then on.

Even a company that makes no profit or a loss still has obligations once it is active. Registration is about telling HMRC the company exists and is trading, not about whether there is any tax to pay yet.

Paying your corporation tax bill

The payment deadline is not the same as the filing deadline, and it comes first. For companies with taxable profits up to £1.5 million, corporation tax must be paid nine months and one day after the end of the accounting period. So a company with a year end of 31 March must pay by 1 January the following year. There is no bill or reminder that sets the amount for you, which is why working out the figure early matters even though the return itself is not yet due.

Larger companies do not wait for a single deadline. Companies with taxable profits over £1.5 million must pay in instalments, and the rules differ again for profits between £1.5 million and £20 million and for profits over £20 million. Most newly formed and owner-managed companies sit comfortably under the £1.5 million line and pay in one go, but keep the instalment threshold in mind if the business grows quickly.

Payment methods and processing times vary, so allow enough time for the money to reach HMRC before the deadline rather than paying on the final day. Interest can be charged on tax paid late, which is an avoidable cost with a little forward planning.

Filing your Company Tax Return

The Company Tax Return, form CT600, is due twelve months after the end of the accounting period it covers. Because the payment deadline of nine months and one day arrives first, most companies work out and pay the tax before they formally file the return. You must file even if your company made a loss or has no corporation tax to pay. In the return you calculate the profit or loss for corporation tax, which is worked out differently from the profit or loss in your annual accounts, and you calculate the tax bill.

Filing late triggers automatic penalties, and these were increased for returns with a filing date on or after 1 April 2026. A return that is late attracts a flat penalty of £200, with a further £200 if the return is still outstanding three months after the filing date. If a return is six months late, HMRC estimates your corporation tax and adds a penalty of 10% of the unpaid tax, and a further 10% of any unpaid tax if the return is twelve months late. Companies that file late three times in a row see the flat penalties rise further.

The practical lesson is to treat the twelve-month filing date and the nine-month-and-one-day payment date as two separate entries in the calendar. They protect against different penalties, and meeting one does not excuse missing the other.

Keeping records and staying on top of deadlines

Corporation tax rests on the records behind the figures. You need to keep the accounts and financial records that let you work out taxable profits accurately, and to support the numbers in your return if HMRC asks. Because the taxable profit differs from the accounting profit, good bookkeeping through the year makes both the payment calculation and the return far less stressful when the deadlines arrive.

The rates and thresholds can change from one financial year to the next, and the late filing penalties changed for filing dates on or after 1 April 2026, so it is worth confirming the current figures with HMRC each year rather than relying on last year's numbers. If your company is growing, crossing the £1.5 million profit line or acquiring associated companies changes how and when you pay, so review your position when circumstances change.

If you are still at the formation stage and want the corporation tax setup handled cleanly from day one, our company formation service covers registration and getting your company ready for HMRC, and you can compare what is included on our pricing page.

Conclusion

Corporation tax is manageable once you separate the three obligations that make it up. Register within three months of the company becoming active, pay nine months and one day after your accounting period ends if your profits are up to £1.5 million, and file the Company Tax Return within twelve months. The rate is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief tapering the effective rate for profits in between using the 3/200 standard fraction for the 2024 and 2025 financial years.

The penalties for missing these deadlines are automatic, which makes calendar discipline the single most valuable habit a director can build. Confirm the current rates and limits with HMRC each year, keep clean records through the year, and use HMRC's Marginal Relief calculator whenever your profits fall between the two thresholds. Get those routines in place and corporation tax becomes a predictable annual task rather than a source of surprise bills.

Frequently asked questions