Five things you need to know about Corporation Tax

What is Corporation Tax?

Corporation Tax is the main tax a limited company pays. It’s paid on annual profits, investments and on any gains from selling assets (e.g. land, property or shares) that have increased in value. 

What are the Corporation Tax rates?

The rate of Corporation Tax that you need to pay depends on the profits the business has made in its accounting period. Your rate may change from time to time, so you must ensure you pay the correct rate. 

The latest rates are:

  • Profits of £250,000 or more – 25% (main rate)
  • Profits of £50,000 or less – 19% (small profits rate)

If your profits were between £50,000 and £250,000, you may be entitled to marginal relief.

Can I reduce my Corporation Tax?

Your Corporation Tax bill can be lowered in a number of ways, such as claiming allowable expenses. 

This includes costs the company incurs solely from running the business and can be deducted from profits before tax. A variety of expenses incurred exclusively for the business qualify including:

  • Cost of premises (rent, utility bills etc.)
  • Employee salaries 
  • Employers’ national insurance contributions (NICs) 
  • Employer pension contributions 
  • Business insurance
  • Business-related travel and accommodation 

There are also a few lesser-known expenses:

  • The cost of setting up the company 
  • Broadband
  • Business gifts
  • Donations to charity 

Your company may also qualify for Corporation Tax reliefs which are available on:

  • Research and development costs 
  • Profits from patents 
  • Losses the business makes 
  • Disincorporation – if the company changes structure to a sole trader or partnership. 

What are the Corporation Tax deadlines?

If your taxable profits are £1.5 million or less, Corporation Tax must be paid within nine months and one day of the end of your accounting period. However, if your profits exceed this, you will pay in installments. 

Even if your company hasn’t made any profits, a Corporation Tax Return must still be submitted to HMRC. 

Where do I pay my Corporation Tax bill?

HMRC accepts several payments for Corporation Tax, including online payment, over the phone, via your bank or building society or via direct debit. You can find the details here.