The Corporation Tax Act 2009 is the main UK statute that tells companies how to work out their taxable profits. It consolidates the rules for trading income, property income, loan relationships, intangible fixed assets, and other income streams, and it is the framework a company works through before applying the rates and filing rules that produce the final tax bill. The Act came out of the Tax Law Rewrite Project, which restated older legislation in clearer language while keeping the same legal effect.
Which Companies Are Within the Charge
Part 2 sets out who pays. A company is liable to UK corporation tax if it is UK-resident, and residence turns on two tests: where the company was incorporated and where its central management and control sits. Any company incorporated in the UK is automatically UK-resident. A company incorporated abroad can still be UK-resident if its key strategic decisions are made here, which HMRC assesses by looking at where the board of directors actually exercises control in practice.1GOV.UK. Company Residence – How to Review Residence
UK-resident companies pay corporation tax on their worldwide profits, covering both income and capital gains regardless of where the economic activity happened. Non-resident companies fall within the charge only where they trade in the UK through a permanent establishment, such as a branch or a fixed office. The Act uses accounting periods as its basic timeframe. These usually track a company’s financial year, but an accounting period cannot exceed twelve months, so a longer financial year has to be split for tax purposes.
Rates, Filing, and Payment
The main rate of corporation tax is 25%, applying to companies with annual profits above £250,000. Companies with profits under £50,000 pay the small profits rate of 19%. Between those thresholds, marginal relief tapers the effective rate from 19% up to 25%, using a standard fraction of 3/200.2GOV.UK. Corporation Tax Rates and Allowances Where a company has associated companies, the £50,000 and £250,000 thresholds are divided equally among them, which can push a smaller company into the main rate.
The CT600 return is due within twelve months of the end of the accounting period. The tax itself is normally payable nine months and one day after the period ends. Large companies with profits above £1.5 million pay in quarterly instalments instead, with the first two instalments falling due before the accounting period has even closed.3GOV.UK. Pay Corporation Tax if You’re a Large Company
How Trading Profits Are Calculated
Part 3 governs the profits of a trade. The starting point is the company’s own accounts. Section 46 requires trading profits to be calculated in accordance with generally accepted accounting practice (GAAP), and tax adjustments are then layered on top.4Legislation.gov.uk. Corporation Tax Act 2009 – Section 54 Some items in the accounts are added back, and some deductions that never appeared in the accounts are claimed separately.
The Wholly and Exclusively Rule
Section 54 is the main restriction on expenses. It blocks any expense not incurred wholly and exclusively for the purposes of the trade. Where an expense has a dual purpose, the whole amount is disallowed unless a specific part or proportion of it relates solely to the trade, in which case only that part is deductible.4Legislation.gov.uk. Corporation Tax Act 2009 – Section 54 A director’s trip that mixes business meetings with personal travel, for example, will draw scrutiny over whether the business element can be identified separately. The Act also lists categories that are always disallowed, including business entertainment. Capital expenditure is excluded from the trading profit calculation entirely and is dealt with through capital allowances.
Capital Allowances
Accounting depreciation is not deductible for tax. Companies add it back and claim capital allowances instead. The Annual Investment Allowance (AIA) lets a business deduct up to £1 million of qualifying plant and machinery expenditure in the year of purchase.5GOV.UK. Claim Capital Allowances – Annual Investment Allowance
Full expensing sits alongside the AIA and allows companies to deduct 100% of the cost of qualifying main-rate plant and machinery with no monetary cap. It was introduced in April 2023 and made permanent by the Autumn Finance Bill 2023.6GOV.UK. Capital Allowances – Permanent Full Expensing for Companies Investing in Plant and Machinery Special-rate assets such as integral features of buildings qualify for a 50% first-year allowance. Anything not covered by these reliefs goes into writing-down allowance pools, deducted at 18% (main rate) or 6% (special rate) per year on a reducing-balance basis.7GOV.UK. Claim Capital Allowances
Loan Relationships
Parts 5 and 6 set out a specialised regime for taxing debt. A loan relationship exists whenever a company stands as either creditor or debtor under a money debt arising from the lending of money.8GOV.UK. Corporate Finance Manual – Introduction to the Corporate Finance Manual Part 6 extends the rules to related arrangements that are not strictly loans but are treated as loan relationships for tax purposes, including certain money debts, disguised interest, and alternative finance products.
The regime brings debits and credits into the tax computation. Section 313 determines these amounts on whatever basis of accounting the company uses, provided it accords with GAAP, which in practice usually means an amortised cost basis.9Legislation.gov.uk. Corporation Tax Act 2009 – Section 313 Interest income is taxed, and interest expense is relieved, as it accrues rather than when cash moves. That stops companies shifting taxable income between periods by timing their payments.
Connected-company transactions are treated differently. They must use the amortised cost basis regardless of the company’s normal accounting policy.9Legislation.gov.uk. Corporation Tax Act 2009 – Section 313 This is one of several anti-avoidance features designed to stop groups engineering artificial interest deductions. Loans between connected parties need to reflect arm’s-length commercial terms or risk having their interest relief denied.
Intangible Fixed Assets
Part 8 provides a single regime for goodwill and intangible fixed assets, including patents, trademarks, copyrights, and know-how.10GOV.UK. Corporate Intangibles Research and Development Manual – CIRD10110 The default approach ties tax relief to the accounting treatment: as an intangible asset is written down through amortisation or impairment in the accounts, that same amount reduces taxable profit. The regime applies to assets created or acquired from unrelated parties after its commencement dates, and it includes safeguards against inflating asset values between connected companies.
Goodwill Restrictions by Acquisition Date
Goodwill sits under a different set of rules that depend heavily on when it was acquired. Finance Act 2019 introduced a fixed writing-down rate of 6.5% per year for goodwill and certain related assets (such as customer relationships and unregistered trademarks) acquired on or after 1 April 2019. That relief is only available where the acquired goodwill has a connection to other qualifying intellectual property.11GOV.UK. New Clause 6 and New Schedule 1 – Intangible Fixed Assets Restrictions on Goodwill
For goodwill acquired between 8 July 2015 and 31 March 2019, no amortisation deduction is available at all, and any loss on disposal is treated as a non-trading debit rather than a trading expense. The legislation contains anti-avoidance rules to stop companies restructuring acquisitions to turn non-qualifying assets into qualifying ones, particularly through related-party transfers. The acquisition date and the identity of the seller both matter when a deal involves goodwill.
Property Income
Part 4 covers income from land and buildings. It distinguishes a UK property business from an overseas property business, and each is treated as a separate source of income. A UK property business covers every activity a company carries on for generating income from UK land, including rental income and lease premiums.12Legislation.gov.uk. Corporation Tax Act 2009 – Part 4 Property Income
Property profits use the same core rules as trading profits. Section 210 applies many of the Part 3 provisions directly, including the GAAP requirement, the wholly-and-exclusively test, restrictions on capital expenditure, and rules on bad debts.13Legislation.gov.uk. Corporation Tax Act 2009 – Section 210 Maintenance, insurance, and property management fees reduce rental income within the same property business. Because property income is a separate source, though, property business losses can generally only be set against future profits of the same property business rather than against trading income.
R&D Relief Interacts With, But Sits Outside, the Act
R&D tax relief is not part of CTA 2009 itself, but it is one of the most significant reliefs that feeds into a corporation tax computation. From April 2024, a merged R&D expenditure credit scheme applies to all companies, replacing the separate SME and large-company regimes. The merged scheme provides an above-the-line credit of 20% of qualifying R&D expenditure, with an Enhanced R&D Intensive Support route offering a payable credit of 14.5% for loss-making SMEs that spend at least 30% of their total expenditure on qualifying R&D.14GOV.UK. Research and Development Tax Relief – The Merged Scheme and Enhanced R&D Intensive Support HMRC has increased its compliance activity around R&D claims in recent years, so documenting qualifying activities and expenditure carefully matters.
Group Relief Sits in CTA 2010, Not CTA 2009
Companies looking for the rules on surrendering losses between group members will not find them in CTA 2009. Those rules are in the Corporation Tax Act 2010, and they work alongside CTA 2009’s profit-computation framework. Group relief allows one company to surrender its trading losses, property business losses, or certain other amounts to another company in the same group. To be in the same group, one company must directly or indirectly own at least 75% of the ordinary share capital of the other, or both must be 75% subsidiaries of a common parent, and the owning company must be beneficially entitled to at least 75% of distributable profits and assets on a winding up.15GOV.UK. Company Taxation Manual – Groups: Group Relief: The Group Relationship A separate consortium relief regime covers companies that fall short of the 75% threshold.16GOV.UK. Company Taxation Manual – Consortia: Group Relief: Introduction The 75% relationship must exist throughout the relevant accounting period, so a mid-year change in ownership can disrupt planned loss surrenders.
Penalties for Late Filing and Errors
Penalties run on two separate tracks: filing the return late, and getting the numbers wrong.
A CT600 filed after the deadline attracts a £100 penalty immediately, followed by a second £100 penalty if the return is still outstanding after three months. At six months, a tax-geared penalty of 10% of the unpaid corporation tax is added, and at twelve months another 10% follows. If a company files late three times in a row, the flat penalties rise from £100 to £500 each.17GOV.UK. Company Tax Returns – Penalties for Late Filing
Inaccuracies fall under Schedule 24 of the Finance Act 2007 and can be far more expensive. A careless error carries a penalty of up to 30% of the tax that would have been lost. A deliberate but unconcealed inaccuracy rises to 70%, and a deliberate and concealed inaccuracy reaches 100%. HMRC reduces these percentages based on the quality of the company’s disclosure: an unprompted disclosure of a deliberate and concealed error can bring the penalty down to 30%, while a prompted disclosure of the same error will not fall below 50%.18Legislation.gov.uk. Finance Act 2007 – Schedule 24 Coming forward before HMRC opens an enquiry makes a substantial difference to the outcome.