Corporation Tax in the UK: What Small Businesses Need to Know

Corporation Tax is the tax paid by UK limited companies and certain other organisations on their taxable profits. Unlike income tax, it is not deducted at source — companies must calculate and pay it themselves. Getting it right is essential, as HMRC can open an enquiry into your company tax return up to 12 months after filing.

Who Pays Corporation Tax?

Corporation Tax is paid by UK limited companies, foreign companies with a UK permanent establishment, clubs, co-operatives, and unincorporated associations such as sports clubs. Sole traders and partnerships do not pay Corporation Tax — they pay income tax on their profits through Self-Assessment.

Corporation Tax Rates for 2025/26

The main rate of Corporation Tax is 25%, applying to profits above £250,000. The small profits rate is 19%, applying to profits up to £50,000. For profits between £50,000 and £250,000, Marginal Relief applies — you pay between 19% and 25% depending on your profit level. Marginal Relief is calculated using a formula: subtract the small profits limit from your augmented profits, multiply by a standard fraction (currently 3/200), and deduct from the 25% calculation.

Associated Companies

The profit thresholds are divided by the number of associated companies plus one. So if your company has one associated company, the small profits limit drops to £25,000 and the upper limit to £125,000. HMRC defines associated companies broadly — think carefully about relationships with other businesses you or your family control.

Accounting Periods

Corporation Tax is assessed on accounting periods, which normally coincide with your company's financial year. Your company tax return (CT600) covers a 12-month accounting period. If your accounts cover a period longer than 12 months, HMRC splits it into two accounting periods for CT purposes.

What Is Taxable Profit?

Taxable profit starts with your accounting profit and then adjustments are made: add back non-allowable expenses (depreciation, entertaining); deduct allowable capital allowances; apply any available reliefs (R&D credits, loss relief, etc.).

Filing and Payment Deadlines

Your CT600 must be filed within 12 months of the end of your accounting period. However, Corporation Tax must be paid earlier — within 9 months and one day of the accounting period end. So for a year ending 31 March 2025, payment is due by 1 January 2026, but the return is due by 31 March 2026. For large companies with profits above £1.5 million, quarterly instalment payments apply.

Allowances and Reliefs

The Annual Investment Allowance allows deduction of the full cost of qualifying plant and machinery up to £1 million per year. The 100% First Year Allowance applies to new qualifying zero-emission cars. R&D Tax Credits allow enhanced deductions (or cash credits for loss-making companies) for qualifying research and development expenditure. Trading losses can be carried back one year or forward indefinitely to offset future profits.

HMRC Online Service

All companies must file their CT600 and company accounts online through HMRC's Corporation Tax online service. You will need a Government Gateway account and will need to file your accounts in iXBRL format — most accounting software generates this automatically.

Penalties

Late filing incurs penalties starting at £100 for one day late. Late payment incurs interest at HMRC's official rate. If the return is more than 6 months late, an additional 10% penalty of estimated unpaid tax applies.