Corporation Tax (CT) is paid by UK limited companies on their taxable profits. After the April 2023 changes, the rate is no longer a flat 19% for all companies — a more complex graduated system now applies. Understanding the rates, deadlines, and available reliefs is essential for any small business owner looking to manage their tax position effectively.
Corporation Tax Rates for 2024/25
From 1 April 2023, the Corporation Tax rate structure changed significantly. The previous flat rate of 19% was replaced with a system depending on your company's taxable profits in an accounting period.
The Small Profits Rate of 19% applies where augmented profits (profits plus certain dividends received from non-associated companies) are £50,000 or below. The Main Rate of 25% applies where augmented profits exceed £250,000. Marginal Relief applies for profits between £50,000 and £250,000 — this provides a smooth effective rate that rises from 19% to 25% across that band.
- Profits up to £50,000: 19% (Small Profits Rate)
- Profits between £50,000 and £250,000: 19%–25% with Marginal Relief
- Profits above £250,000: 25% (Main Rate)
- These thresholds are divided by the number of "associated companies" (broadly, companies under common control)
When and How to Pay Corporation Tax
Corporation Tax is paid to HMRC based on your company's accounting period (usually 12 months). The key deadlines are:
Your Company Tax Return (CT600) must be submitted to HMRC within 12 months of the end of your accounting period. However, you must pay any Corporation Tax owed within 9 months and 1 day after the end of the accounting period — three months before the return is due. This catches many new business owners by surprise.
Large companies with profits over £1.5 million are subject to quarterly instalment payments (QIPs), but this is unlikely to apply to most small businesses in their early years.
Allowable Expenses and Deductions
Corporation Tax is charged on taxable profits — not total income. You can deduct allowable business expenses before calculating your CT liability. An expense is allowable if it is incurred wholly and exclusively for the purposes of the trade.
Common allowable deductions include:
- Staff salaries, wages, and employer NICs
- Rent, rates, and utilities for business premises
- Professional fees (accountancy, legal, etc.)
- Travel and subsistence for business purposes
- Software subscriptions and IT costs
- Marketing and advertising costs
- Capital allowances on equipment, machinery, and vehicles (via Annual Investment Allowance or Writing Down Allowance)
- Employer pension contributions
Key Reliefs and Incentives
Beyond basic deductions, HMRC offers several reliefs that can significantly reduce your CT bill.
Research and Development (R&D) Tax Relief allows companies to deduct an enhanced amount for qualifying R&D expenditure. Since April 2024, the merged R&D scheme provides a 20% uplift for most companies — meaning you deduct 120% of your qualifying R&D costs instead of 100%. The R&D Intensive SME scheme offers a 27% payable credit rate for loss-making SMEs with qualifying R&D intensity of 30%+.
The Annual Investment Allowance (AIA) lets you deduct 100% of qualifying capital expenditure (plant, machinery, etc.) in the year of purchase, up to a current limit of £1 million per year.
Minimising Your Corporation Tax Bill Legally
Tax avoidance (legal reduction of your tax bill) is entirely legitimate. Aggressive tax avoidance that exploits loopholes is subject to HMRC scrutiny, but sensible tax planning is expected and encouraged. Key strategies for small companies include:
Ensure all legitimate expenses are claimed. Many small business owners understate their allowable costs because they are unsure what qualifies. An accountant familiar with your industry can identify deductions you may have missed.
Consider timing of expenditure and income. If you are expecting a lower-profit year in the near future, deferring income or accelerating expenses into the higher-profit year can be beneficial. Use pension contributions strategically — employer pension contributions are fully deductible and reduce taxable profits pound for pound.
- Claim all allowable expenses, including home office costs where applicable
- Use the AIA for capital expenditure — claim 100% upfront rather than depreciating over years
- Make employer pension contributions before the accounting year-end
- Assess eligibility for R&D Tax Relief if your business develops new processes, software, or products
- Consider loss relief if your company makes a loss — trading losses can be carried back or forward against profits
Frequently Asked Questions
When does my company first need to pay Corporation Tax?
You must register for Corporation Tax with HMRC within 3 months of starting to trade. Your first CT payment is due 9 months and 1 day after the end of your first accounting period. For a company incorporated on 1 January 2025 with a 31 December year-end, the first payment is due 1 October 2026.
What if my company makes a loss?
If your company makes a trading loss, no CT is payable for that period. You can carry the loss forward to set against future profits, carry it back up to 12 months against profits from the previous period (claiming a CT refund), or in certain circumstances offset it against other income within a group.
Are dividends tax deductible for Corporation Tax purposes?
No. Dividends paid to shareholders are not an allowable deduction for Corporation Tax — they are paid out of post-tax profits. This is why the salary/dividend split is a tax-planning decision that involves balancing CT, Income Tax, and NICs across the overall picture.
Do I need to file a Corporation Tax return even if I made no profit?
Yes. HMRC requires you to file a Company Tax Return (CT600) for every accounting period, even if the company made a loss or had no activity. The return confirms there is no CT liability. Failure to file incurs automatic penalties starting at £100.
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