Money Matters

What is corporation tax?

What is corporation tax in the UK, and why does it matter? Learn about corporation tax rates, who pays the tax, and when it’s paid to protect your business.

9 April, 202511 min read Share

Corporation tax in the UK is a tax on business profits and capital gains, meaning companies must pay a percentage of their earnings to HMRC. 

If you’re a business owner or an accountant managing corporation finances, understanding what corporation tax is, why it matters, and how to manage it effectively can help you stay on top of your obligations and keep your company financially healthy. 

Who pays corporation tax?

Registered businesses operating in the UK must pay corporation tax on their profits. The tax applies to a range of organisations, not just limited companies. Here’s a quick rundown of who’s required to pay corporation tax: 

• UK-based limited companies: all limited companies registered in the UK must pay corporation tax on their profits. 

• Foreign companies with UK branches: if your company is based outside the UK but has a branch or office in the country, it must pay tax on the profits generated within the UK. 

• Clubs, cooperatives, and some associations: if you manage the accounting of organisations such as clubs or trade associations, you may also be liable for corporation tax. 

Are there any exemptions?

Yes. Not all businesses have to pay corporation tax.

For example, if you are part of a charity or a community amateur sports club, you are usually exempt from corporation tax on certain types of income, such as that used for charitable purposes, under HMRC guidelines. 

However, the organisation may be liable for corporation tax on non-primary-purpose trading income. 

What are the typical corporation tax rates? 

Corporation tax rates depend on the amount of taxable profit your company makes in its accounting period, and you’ll need to work them out and report them to HMRC rather than waiting for a bill.

What percentage is corporation tax? 

Corporation tax rates in the UK are usually 19% to 25%, depending on your profit level. These tax rates apply to your taxable profits (typically trading profits, investment income, and chargeable gains). 

Here’s what you need to know about the current rates: 

• Small profits rate (19%): if your company’s profits are £50,000 or less, you’ll pay 19% corporation tax. 

• Main rate (25%): if your profits are over £250,000, you’ll pay the 25% main rate. 

• Marginal relief (between 19% and 25%): if your profits fall between £50,000 and £250,000, marginal relief can apply so your effective rate increases gradually, rather than jumping straight to 25%. If your company earns £100,000 in profit, for example, you won’t automatically pay the full 25%—marginal relief can reduce your effective corporation tax rate. 

However, two details often get missed: 

• Short accounting periods and associated companies can change the thresholds. The £50,000 and £250,000 limits are reduced proportionately if your accounting period is shorter than 12 months, and they’re also reduced based on the number of associated companies you have. 

• Non-UK resident companies don’t always get the same treatment. For example, HMRC notes some cases where non-UK resident companies cannot claim marginal relief, and non-UK resident companies with a UK branch are typically taxed on UK activities only. 

Industry and international nuances 

It’s also worth noting that some sectors have special rules and extra charges, such as banks and oil and gas “ring fence” profits (which have different rates).  

• Banks and building societies may pay a 3% bank surcharge on taxable profits above the relevant allowance (£100 million), on top of corporation tax. Since 2011, banks have been subject to the bank levy, an annual charge on certain balance-sheet liabilities and equity (including specified deposits), calculated under HMRC rules. 

• Upstream oil and gas extraction profits from the UK or its continental shelf are taxed under a separate regime designed to “ring fence” those profits so they can’t be reduced by losses from other activities. There are also two tiers for ring fence companies: those with profits under £50,000 (19% rate) and those with profits above £250,000 (30% rate). In 2002, the government added a supplementary charge for ring fence companies, which currently stands at 10%. On top of that, the government introduced an energy profits levy in 2022, which was adjusted to 38% in 2024. 

Corporate tax reliefs and deductions          

You may be able to reduce your corporation tax bill by claiming tax reliefs and deductions.

Some of the most common include:

• R&D tax reliefs: if your business spends money on innovation (for example, developing new products or improving processes), you may be able to claim relief on qualifying R&D costs. For expenditure on or after 1 April 2024, the RDEC (Research and Development Expenditure Credit) rate is 20%. Loss-making SMEs spending at least 30% of their total expenditure on efforts that qualify as R&D can claim an 86% ERIS (Enhanced R&D Intensive Support) deduction as well as a payable credit of 14.5%. 
• Capital allowances: instead of deducting the full cost of many assets as a day-to-day expense, you normally claim capital allowances to reduce taxable profits. The most widely used is the Annual Investment Allowance (AIA), which lets businesses deduct 100% of qualifying plant and machinery costs (up to £1 million per year). If you buy assets above the AIA limit (or assets that do not qualify), you typically claim writing down allowances each year—currently 18% for the main rate pool (standard assets) and 6% for the special rate pool (assets with longer economic lives). 
• Full expensing (replacing the super-deduction allowance): if your company invests in new qualifying plant and machinery, you may be able to claim full expensing (a 100% first-year allowance) for main-rate items and a 50% first-year allowance for special-rate items (with eligibility rules and exclusions). This replaced the temporary 130% super-deduction, which applied to qualifying expenditure incurred from 1 April 2021 to 31 March 2023.  
• Patent box: if your company profits from patented inventions and elects into the regime, the patent box can apply a reduced 10% corporation tax rate to relevant profits from exploiting qualifying patents. This is particularly useful for businesses in technology, engineering, and pharmaceuticals that hold patents on their innovations. 
• Relief for losses: if your company makes a loss, you can usually offset it against previous, current, or future profits (subject to HMRC rules), which can reduce your corporation tax bill, particularly helpful in difficult financial periods. 
• Reliefs for creative industries: sector-specific reliefs for film, TV, animation, video games, theatre, orchestras, and museum exhibitions. If eligible, you may be able to claim enhanced deductions on production costs or receive a payable credit if your company makes a loss. If your business is eligible, you can claim a higher deduction on production costs or receive a cash rebate if your company makes a loss. 
• Relief on goodwill and other relevant assets: if your company purchases another business, you may be able to claim relief on certain intangible assets (including, in some circumstances, goodwill and IP-related assets), depending on the nature of the acquisition and the applicable rules. 
• Disincorporation relief: if your company transitions from a limited company to a sole trader or partnership, this relief may allow certain asset transfers without immediate tax consequences (where available and subject to conditions). For businesses that no longer benefit from a corporate structure, this system helps you avoid large tax liabilities during the transition. 

By understanding these reliefs, you can plan and find legal ways to reduce your corporation tax bill. 

If you’re unsure which reliefs apply to you, consider speaking to an accountant to maximise your tax savings. 

How to pay corporation tax

Paying corporation tax involves three key steps:

1. Register for corporation tax

When you start a limited company, you must register for corporation tax with HMRC within three months of starting to trade. You can register online using your company’s 10-digit Unique Taxpayer Reference (UTR). 

2. Prepare and file a company tax return

At the end of your company’s financial year, you’ll need to file a company tax return (CT600) with HMRC, detailing your: 

• Business income and expenses 

• Taxable profit (used to work out your company tax rate) 

• Deductions and reliefs claimed. 

Once registered for corporation tax, HMRC will send a “notice to deliver a company tax return”, reminding you of your obligation to file. 

Even if your company makes a loss or has no corporation tax to pay, you must still prepare and submit a tax return. 

Your filing deadline is 12 months after the end of your accounting period, but your payment deadline is earlier: you must usually pay any corporation tax due within nine months and one day after the end of that period.

3. Pay corporation tax

Corporate taxes paid to HMRC must reach the entity within nine months and one day after the end of your accounting period. 

HMRC accepts payments through various methods, including: 

• Online banking (Faster Payment System/bank transfer): often same day or next working day; a good option close to the deadline, but confirm your bank’s cut-off times to avoid missing it 

• CHAPS (Clearing House Automated Payment System): typically same working day (before your bank’s CHAPS cut-off); useful for last-minute, high-value payments when you need certainty the payment lands on time 

• BACS (Bankers’ Automated Clearing Services): usually takes around three working days; best initiated well before the due date to reduce the risk of late-payment interest/penalties 

• Direct Debit: must be set up in advance so HMRC will collect on the agreed date; helpful for avoiding late payment, as long as the mandate is in place early enough 

• Corporate credit or debit cards: can be quick, but may involve processing fees and provider-dependent posting times; useful near the deadline only if you’re confident it will clear in time 

When making a payment, you’ll need your 17-character payment reference, unique to your accounting period, which can be found in your HMRC online account. 

When to pay corporation tax

Corporation tax deadlines are linked to your company’s financial year, so keeping track of them is crucial. Missing a deadline could mean penalties and interest charges, so staying organised can save you both stress and money. 

• Tax return deadline: you must file your company’s tax return within 12 months after the end of your accounting period. 

• Corporation tax payment deadlines: you need to pay your corporation tax nine months and one day after the end of your accounting period. 

For example, if your company’s financial year ends on 31 March 2025, your corporation tax payment would be due by 1 January 2026, and your tax return would need to be filed by 31 March 2026. 

Why paying on time matters

Paying your corporation tax late isn’t just an inconvenience. It can lead to serious consequences. 

HMRC may issue fines for overdue tax, and any unpaid amount will start accruing interest, increasing your overall tax bill. 

Repeated late payments can also draw unwanted attention from HMRC, potentially triggering an investigation into your business finances. 

Staying on top of deadlines helps you avoid unnecessary costs and keeps your company in good stead. 

Common mistakes (and how to avoid them)

Even experienced business owners can slip up when it comes to corporation tax. Here are a few pitfalls to watch out for: 

• Forgetting to register with HMRC: even if your company isn’t making a profit, you still need to notify HMRC and file a tax return. 

• Miscalculating your tax bill: errors in reporting profits or expenses can lead to underpayment penalties. 

• Missing the payment deadline: the simplest way to avoid this is to set up calendar reminders or automate payments so you never miss a due date. 

Using accounting software can help you skip these challenges altogether. With features like automated tax calculations, built-in deadline reminders, and direct filing with HMRC, you ensure accuracy and can stay compliant without the hassle. 

Instead of manually tracking deadlines or worrying about calculation errors, an intuitive software solution keeps your finances organised and your business running smoothly. 

What happens if you miss a corporation tax deadline?  

HMRC charges interest on overdue corporation tax from the due date until payment is made. The current late payment interest rate is 7.75% (in effect from 9 January 2026). 

Interest applies even if you’re just a day late and can’t be appealed. 

Filing penalties for late tax returns

• 1 day late: £100 fine
• 3 months late: additional £100 fine
• 6 months late: HMRC estimates your tax bill and adds a penalty of 10% of unpaid tax
• 12 months late: another 10% penalty on unpaid tax.

If your return is late three times in a row, the £100 penalties increase to £500 each. 

How to appeal a late payment penalty

If you have a reasonable excuse for missing a deadline (such as a serious illness, system failures, or unexpected technical problems when using HMRC’s online services), you can appeal the penalty through HMRC’s online service or in writing within 30 days of the penalty notice date. 

How to efficiently manage corporation tax

Corporation tax might seem overwhelming, but with reliable accounting software and a simple process, you can keep everything organised and stress-free.  

With corporation tax explained in plain terms, you’ll know what’s due and when. Here’s how to make the process easier: 

Plan for tax bills

The best way to avoid a last-minute rush is to plan. 

Keep accurate financial records throughout the year, so you always have a clear picture of your business’s finances. 

Setting aside a portion of your monthly budget for your corporation tax bill can help prevent cash flow issues when the payment deadline arrives. 

Use accounting software with business tax functionality 

Sage Accounting can take much of the busywork out of business tax management by helping you keep clean, HMRC-ready records year-round, including: 

• Automating day-to-day bookkeeping with invoicing, expense tracking, and bank reconciliation, so your year-end figures are easier to finalise for corporation tax and other business tax needs 

• Producing clear reports (like profit and loss and cash flow reports) to support your tax estimates and planning, so you’re not scrambling at deadline time 

• Supporting HMRC-connected filing where applicable, such as Making Tax Digital (MTD) VAT submissions from within Sage Accounting, reducing manual entry and improving accuracy 

• Making corporation tax prep smoother by keeping your transactions organised and exportable for your CT600 workflow (often handled via dedicated corporation tax software), helping you avoid paper trails and rework 

Final thoughts

To properly file corporation tax, UK rules have to be built into the tools you use. That is the best option for avoiding stress when you prepare the documentation. 

With the right approach—and the right tax accounting software—you can keep your records organised year-round, apply reliefs correctly, and stay on track with both filing and payment deadlines. Instead of worrying about calculations and compliance, you can focus on confidently growing your business.