If your business operates through a limited company, you will need to understand how Corporation Tax works. Corporation Tax is the tax companies pay on their profits, and it applies to most UK companies, including resident companies and non‑UK resident companies with a UK permanent establishment.
Corporation Tax is a direct tax on the profits of a company. Profits subject to Corporation Tax include:
Trading profits — profits from your main business activities
Investment profits — profits from investments such as interest or rental income
Chargeable gains — gains from selling or disposing of business assets
These profits must be calculated according to specific accounting and tax rules.
Most UK companies must pay Corporation Tax if they are:
Resident in the UK
Non‑UK resident but with a UK permanent establishment
A company is usually UK resident if it is incorporated in the UK or centrally managed and controlled from the UK.
Corporation Tax is based on profits computed in accordance with tax law rather than accounting profit. This means:
Some expenses allowable in accounts may not be deductible for tax
Certain tax reliefs and allowances are available (e.g., capital allowances)
Timing differences can arise between accounting and tax treatments
Understanding these differences is critical to calculating the correct tax liability.
Corporation Tax rates can vary depending on profits and government policy. In the current UK tax regime:
A main rate applies to most company profits
A small profits rate may apply where profits are below a set threshold
Profit bands between these levels may attract tapered rates through marginal relief
Rates and thresholds can change with fiscal policy, so it’s important to check current year figures when planning.
Companies must:
Register for Corporation Tax within three months of starting to trade
File a Company Tax Return (CT600) each year
Pay Corporation Tax within nine months and one day after the end of the accounting period
Late filing or payment can lead to penalties and interest, so accurate planning and timely submission are essential.
A Company Tax Return (CT600) must be filed with HMRC each year, even if you made no profit or owe no tax. This includes:
A computation of taxable profits
Details of reliefs and allowances claimed
Any adjustments between accounts and tax profits
Digital filing is now the norm, and supporting records must be maintained for at least six years.
Companies can often reduce their Corporation Tax liabilities by claiming available reliefs and allowances, such as:
Capital allowances — tax relief on certain plant and machinery expenditure
Research & Development (R&D) tax reliefs — special incentives for qualifying R&D activities
Loss reliefs — reliefs that allow trading losses to be carried forward or back in certain circumstances
Each relief has specific rules and eligibility, and proper planning can maximise value.
Companies in the same group may be able to share losses. This means one company’s losses can offset another’s profits, reducing overall tax payable within the group. Group relief requires careful structuring and documentation.
Effective planning can help manage Corporation Tax. Key planning opportunities include:
Timing capital expenditure to maximise capital allowance claims
Using losses strategically
Planning remuneration (salaries, dividends) to balance tax and NIC costs
Considering tax incentives for investment, R&D, and regional development
Tax planning must always reflect commercial reality and comply with law.
Corporation Tax involves detailed rules that can impact cash flow, profitability, and long‑term business strategy. Applegrow Financial Advisors can assist you with:
Corporation Tax registration and reporting
Preparing accurate CT600 returns
Identifying and claiming reliefs and allowances
Planning to reduce tax liabilities lawfully
Coordinating tax planning with wider business goals
Whether you are a new company or an established business, good Corporation Tax planning safeguards compliance and enhances profitability.
Contact Applegrow Financial Advisors today for expert guidance on tax compliance and strategic planning tailored to your business.
