What is Corporation Tax?

Corporation Tax is a tax that companies and certain associations must pay on their profits. If you run a limited company, operate a UK branch of a foreign company, or manage certain clubs or co-operatives, you'll need to understand how Corporation Tax works and when you need to pay it.

Who needs to pay Corporation Tax?

You must pay Corporation Tax if you operate as:

• A limited company
• A foreign company with a UK branch or office (known as an 'overseas company')
• A club, co-operative or other unincorporated association, such as a community group or sports club

Sole traders and ordinary business partnerships do not pay Corporation Tax. Instead, they pay Income Tax on their profits through Self Assessment.

What counts as taxable profit?

Corporation Tax applies to all profits your company or association makes, including:

• Trading profits from doing business
• Income from investments
• Chargeable gains when you sell assets for more than they cost

If your company is UK resident for tax purposes, you pay Corporation Tax on all profits from the UK and abroad. If your company is not UK resident but has a UK office or branch, you only pay Corporation Tax on profits from UK activities.

Corporation Tax rates for 2025/26

The rate you pay depends on how much profit your company makes:

Small profits rate: 19% on profits of £50,000 or less

Main rate: 25% on profits above £250,000

Marginal Relief: If your profits fall between £50,000 and £250,000, you may be entitled to Marginal Relief, which reduces the amount of tax you pay between these thresholds.

These thresholds are reduced proportionately if your accounting period is shorter than 12 months, or if your company has associated companies.

Registering for Corporation Tax

When you register your company with Companies House, you'll be given the option to set up for Corporation Tax at the same time. If you don't do this during registration, you'll need to add Corporation Tax services to your business tax account later.

Clubs, co-operatives and unincorporated associations need to register for Corporation Tax separately using a different process.

If your company isn't actively doing business, it may be classed as dormant for Corporation Tax purposes.

Working out and paying Corporation Tax

You do not receive a bill for Corporation Tax. Instead, you must:

1. Keep accurate company and accounting records throughout the year

2. Prepare a Company Tax Return to calculate how much Corporation Tax you owe

3. Pay the Corporation Tax you owe (or report to HMRC if you have nothing to pay) by your deadline

4. File your Company Tax Return, even if you make a loss or have no tax to pay

You must file and pay even if your company made no profit or made a loss. Failing to file your Company Tax Return by the deadline results in penalties, and paying late means you'll be charged interest.

Business expenses and deductions

Limited companies can deduct certain costs when calculating taxable profit. Expenses fall into two categories:

Revenue expenses are day-to-day running costs that you can deduct from your profits. Examples include:

• Accountancy fees for preparing company accounts
• Stock and materials you buy to sell on
• Regular business costs

Capital expenses are costs for buying, selling or improving long-term assets. You cannot deduct these directly, but you may be able to claim capital allowances instead. Examples include:

• Buying equipment or machinery
• Purchasing business vehicles
• Buying property or land for business use
• Legal fees for buying property or securing long-term contracts

To be deductible, expenses must be incurred wholly for business purposes. Some expenses, such as entertaining clients, are specifically disallowed and can never be deducted.

Allowances and reliefs

You may be able to reduce your Corporation Tax bill by claiming:

Capital allowances on equipment, machinery and business vehicles you buy and keep for business use

Research and Development (R&D) Relief if your company invests in innovation

Patent Box relief if your company profits from patented inventions

Creative industry tax reliefs for theatre, film, television, animation or video games production

Trading losses relief which can be carried forward or back to reduce tax in other periods

Disincorporation Relief if you're closing your company and becoming a sole trader or partnership

Anything you or your employees get personal use from must be treated as a taxable benefit.

Accounting periods and multiple rates

Corporation Tax is calculated based on your accounting period, which is the period covered by your Company Tax Return.

If your accounting period straddles a date when Corporation Tax rates changed, you'll need to calculate the tax due for each period separately based on the number of days each rate applied.

For example, for an accounting period running from 1 January 2023 to 31 December 2023, you would apply the rate for the financial year starting 1 April 2022 for the first 90 days (1 January to 31 March 2023), then apply the rate for the financial year starting 1 April 2023 for the remaining 275 days.

Getting help

You can appoint an accountant or tax adviser to help you with Corporation Tax. If you need to make changes to your Corporation Tax record, you can contact HMRC's Corporation Tax helpline directly.

Sources

• Corporation Tax
• Corporation Tax rates, expenses and reliefs

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.