Corporation Tax Explained
- David Manklow
- 1 day ago
- 4 min read
What is Corporation Tax?
Corporation Tax is a direct tax paid by UK companies and certain organisations on the profits they make. It applies to limited companies, some clubs and associations, and overseas companies with a UK presence (like branches or offices).
In simple terms, if your business makes a profit, whether from trading, investments, or selling assets, you’ll likely need to pay Corporation Tax. It’s separate from personal tax, and each company is responsible for registering, reporting, and paying its own.
How Does Corporation Tax Work?
If your company operates in the UK, there are a few key steps to stay compliant:
Check if You’re Liable: Most limited companies and certain non-incorporated organisations need to pay Corporation Tax. Even if you’re not sure you’ll make a profit yet, you’ll still need to register.
Register with HMRC: You must register for Corporation Tax within three months of starting to trade, that includes activities like buying, selling, or hiring staff.
Keep Good Financial Records: Accurate records of your income, expenses, and assets form the basis of your company’s tax return (known as the CT600). This is essential for smooth filing and avoiding errors later.
Calculate Your Taxable Profits: Taxable profits include:
Trading profits (from selling goods or services)
Investment income (like interest or dividends)
Chargeable gains (profits from selling assets such as property or shares)
You can deduct allowable business expenses (such as wages, rent, and equipment) to reduce your taxable profit.
File and Pay on Time: You must file your CT600 within 12 months of your accounting period ending, but your Corporation Tax payment is due within 9 months and 1 day after that date.
How to Calculate Corporation Tax
Working out your Corporation Tax bill involves two main steps: calculating your taxable profits and applying the correct tax rate.
1. Work Out Your Taxable Profits
Start with your total profits, then remove any expenses that HMRC allows — for example, salaries, office costs, and professional fees.
Not everything can be deducted. Entertainment, personal costs, and certain depreciation charges aren’t allowable, so it’s worth double-checking before you file.
2. Apply the Right Tax Rate
For the 2024/25 and 2025/26 tax years, Corporation Tax rates are:
If your company has associated businesses, these thresholds may be split between them.
What is Marginal Relief?
Marginal relief is a sliding scale that gradually increases your effective rate between 19% and 25%. You can use HMRC’s online calculator to find your exact figure.
Quick Example:
A company with £180,000 in profits after expenses will likely pay an effective rate around 23%, thanks to marginal relief.A company earning over £250,000 in taxable profits will pay the full 25% main rate.
Can You Reduce Your Corporation Tax Bill?
Yes, there are several legitimate ways to reduce what you owe through reliefs and allowances.
R&D Tax Relief
If your business works on innovative projects or new technologies, you may qualify for Research and Development (R&D) tax relief.This can reduce your Corporation Tax bill or, in some cases, provide a cash benefit, even if your project wasn’t successful.
R&D relief applies to a wide range of industries, from engineering and manufacturing to software and fintech. If you’re unsure whether you qualify, it’s worth getting specialist advice.
Other Common Reliefs
Capital allowances – claim for machinery, vehicles, or equipment purchases
Loss relief – offset past or future trading losses
Patent Box – reduced tax on profits from patented innovations
Pension contributions – deductible as a business expense
These can all make a real difference to your bottom line when managed effectively.
Corporation Tax Deadlines and Penalties
Deadlines matter, missing them can result in penalties and interest charges. Here’s what to remember:
Example: If your accounting period ends on 31 March 2025:
Payment is due by 1 January 2026
Return must be filed by 31 March 2026
Penalties for late filing:
£100 if up to 3 months late
Another £100 if 3–6 months late
Further penalties if more than 6 months overdue
If it happens repeatedly, the fines increase, so it’s best to stay ahead.
Tips for Managing Corporation Tax
Managing your company’s tax doesn’t need to be stressful. With the right tools and habits, you can stay compliant and confident.
Stay Organised Year-Round: Keep all invoices, receipts, and payroll data tidy and accessible. Cloud-based accounting software can make this simple.
Use Smart Accounting Software: Tools like Xero, QuickBooks, and FreeAgent automatically track income and expenses, generate reports, and connect directly to HMRC for online submissions, making compliance with Making Tax Digital easier than ever.
Plan Ahead for Your Tax Bill: Treat tax as a regular business expense. Setting aside a small amount each month can prevent cash flow surprises later.
Get Expert Support When You Need It: Even if you manage most of your accounting yourself, it’s worth seeking advice from professionals, especially when claiming reliefs or dealing with complex transactions.
Working with Band for Tax Services
While Approved Finance Group no longer provides tax services directly, our former tax team has merged with Band, one of our trusted partners.
Through this partnership, our clients continue to have access to expert tax support, including help with Corporation Tax, R&D relief, and other specialist areas.
This collaboration allows us to focus on delivering market-leading finance solutions, while Band provides in-depth tax advice to help your business stay compliant and efficient.
In Summary
Corporation Tax can feel complicated, but with a little planning, and the right advice, it’s easy to stay on top of.Make sure your business is registered, keep accurate records, plan for upcoming payments, and take advantage of reliefs where possible.
And remember, while Approved Finance Group focuses on helping you secure the best funding and financial solutions for your business, we continue to work closely with Band for all tax-related services, so you’re always in safe hands.
Need Support?
If you’re looking to strengthen your business finances, explore funding options, or connect with our trusted partners at Band for tax-related advice, our team is here to help.
Get in touch with Approved Finance Group today.
