UK corporation tax is charged on the profits of limited companies and certain other organisations at 19% where profits are £50,000 or less, 25% where profits exceed £250,000, and a tapered effective rate in between under marginal relief. The tax covers trading income, investment returns, and gains on asset sales. Returns are filed on form CT600 within 12 months of the accounting period end, and the tax itself is due nine months and one day after that period closes.
Who Has to Pay
Every company incorporated in the UK is automatically UK-resident for corporation tax purposes under the Corporation Tax Act 2009.1Legislation.gov.uk. Corporation Tax Act 2009 Section 14 Residency means tax on worldwide profits and chargeable gains, not just income earned in Britain. A company incorporated abroad but managed and controlled from the UK is treated the same way.
Unincorporated associations such as members’ clubs, trade associations, and co-operatives fall inside the corporation tax net too, even without a share structure. Foreign companies that are not UK-resident but trade here through a branch or office pay corporation tax only on the profits generated by those UK operations or UK-held assets.
New companies must register with HMRC for corporation tax within three months of starting business activities.2GOV.UK. Accounting Periods for Corporation Tax Most owner-managed companies also qualify as “close companies” — controlled by five or fewer shareholders, or by any number of shareholders who are also directors3HM Revenue & Customs. Company Taxation Manual – Close Companies General Broad Definition — which brings extra rules on loans and benefits to shareholders that sit outside the general regime.
Rates and the Marginal Band
Since April 2023 the UK has used a two-tier rate structure. Companies with profits of £50,000 or less pay the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%.4GOV.UK. Corporation Tax Rates and Allowances “Profits” here means all income and chargeable gains after deductions.
Between £50,000 and £250,000, companies pay the 25% main rate but receive marginal relief, which tapers the effective rate back down toward 19% at the lower end.4GOV.UK. Corporation Tax Rates and Allowances The relief uses a fraction of 3/200 applied to the difference between £250,000 and the company’s actual profits. In practice, a company earning £150,000 pays an effective rate of roughly 23%.
Associated Companies Split the Thresholds
Both thresholds are divided by the number of associated companies. Two companies are associated if one controls the other, or both are controlled by the same person or persons, regardless of tax residency.5HM Revenue & Customs. Corporation Tax Small Profits Relief – Associated Company Definition Own two associated companies and the small profits threshold drops to £25,000 each, with the main rate threshold at £125,000 each. The rule stops profits being split across multiple entities to stay in the lower band.
Reliefs That Reduce the Bill
Corporation tax liability can be cut significantly through reliefs and allowances. Some are automatic deductions, others need a formal election or claim on the return.
Research and Development
From April 2024, the previous separate R&D schemes for SMEs and large companies were merged into a single Research and Development Expenditure Credit (RDEC), which provides a taxable credit at 20% of qualifying R&D expenditure.6GOV.UK. Research and Development Tax Relief – The Merged Scheme and Enhanced RD Intensive Support The credit itself is taxable, but the net benefit still meaningfully reduces overall cost.
Loss-making SMEs that spend heavily on R&D may qualify for Enhanced R&D Intensive Support (ERIS), which pays a credit at 14.5% for companies meeting the R&D intensity threshold.7GOV.UK. Enhanced Support for Research and Development Intensive Small or Medium Enterprises For any accounting period beginning on or after 1 April 2024, the merged scheme applies.
Capital Allowances
Full expensing lets you deduct 100% of the cost of qualifying plant and machinery in the year of purchase rather than spreading the deduction over several years. A separate 50% first-year allowance covers “special rate” assets, including long-life items and integral features of buildings such as electrical or heating systems.8GOV.UK. Claim Capital Allowances – Full Expensing and 50% First-Year Allowance
The Annual Investment Allowance (AIA) gives 100% relief on the first £1 million of qualifying capital expenditure each year. For most smaller and mid-sized companies, the AIA alone covers all plant and machinery spending, so full expensing mainly matters to larger businesses with heavier capital programmes.
Patent Box
The Patent Box applies a reduced 10% corporation tax rate to profits earned from patented inventions.9GOV.UK. Corporation Tax – The Patent Box To qualify, the company must have created the patented technology or carried out significant development on it. Election is made on the tax return; the regime does not apply automatically.
Creative Industry Credits
Film, television, and animation productions can claim the Audio-Visual Expenditure Credit (AVEC), which replaced the older creative industry reliefs. The rates are:10GOV.UK. Claiming Audio-Visual Expenditure Credits for Corporation Tax
- 53% for independent films
- 39% for children’s TV, animated films, and animated TV programmes
- 34% for other films and TV programmes
From April 2025, productions at the 34% base rate can also claim a 39% credit specifically on visual effects costs, with those VFX costs exempt from the usual 80% cap on qualifying expenditure.10GOV.UK. Claiming Audio-Visual Expenditure Credits for Corporation Tax
Losses and Group Relief
A company that makes a trading loss can carry it back against total profits of the previous 12 months, or carry it forward against future profits.11GOV.UK. Work Out and Claim Relief From Corporation Tax Trading Losses A carry-back claim must be made within two years of the end of the accounting period in which the loss arose.
Carried-forward losses come with a restriction. The first £5 million of profits can be offset in full, but only 50% of remaining profits above that can be relieved with carried-forward losses.11GOV.UK. Work Out and Claim Relief From Corporation Tax Trading Losses A business closing down permanently can use terminal loss relief to carry back losses from its final 12 months against profits of the preceding three years.12GOV.UK. Corporation Tax – Terminal, Capital and Property Income Losses
Within a corporate group, losses can be surrendered from a loss-making company to a profitable one. For carried-forward losses, only losses incurred in periods beginning on or after 1 April 2017 are eligible for surrender.13HM Revenue & Customs. Company Taxation Manual – Group Relief for Carried-Forward Losses – Types of Loss That May Be Surrendered Eligible types include trading losses, non-trading loan relationship deficits, UK property business losses, and excess management expenses.
What You Can and Can’t Deduct
To reduce taxable profit, an expense must have been incurred “wholly and exclusively” for business purposes and must not be specifically disallowed.14GOV.UK. Company Expenses You Can Deduct Before Paying Corporation Tax Wages, rent, utilities, raw materials, and professional fees are normally deductible. Where an expense has a mixed business and personal purpose, only the business portion can be claimed.
Client entertainment is a common trap. Spending on hospitality for clients or prospective customers is specifically disallowed, and the ban extends to incidental costs like taxis to the restaurant, and to your own meal at the same event. Business gifts follow the same rule unless the gift carries a conspicuous advertisement for the company, is not food, drink, tobacco, or a voucher, and costs no more than £50 per recipient per year.15GOV.UK. Taxation of Entertainment Expenses – 480 Chapter 20
Fines and penalties imposed for breaking the law are not deductible, because they are not considered to be incurred for the purpose of the trade.16HM Revenue & Customs. Business Income Manual – Specific Deductions Administration Fines That includes parking tickets, regulatory penalties, and criminal fines. Compensatory damages in a civil settlement can sometimes be deducted; punitive damages cannot. Depreciation shown in the financial accounts is also non-deductible; capital allowances take its place.
Filing the CT600
The Company Tax Return is filed on form CT600 and must be submitted electronically using commercial software.17GOV.UK. Company Tax Return CT600 2026 Version 3 Paper filing is only allowed in very limited circumstances, such as filing in Welsh or where there is a reasonable excuse for not filing online. The return covers one accounting period and requires the 10-digit Unique Taxpayer Reference (UTR) that HMRC issues after registration.18GOV.UK. Find Your Unique Taxpayer Reference UTR
You will need a profit and loss account and balance sheet prepared under UK Generally Accepted Accounting Practice or International Financial Reporting Standards. Depreciation figures from the accounts have to be added back and replaced with the capital allowances you are claiming. Income from different sources, such as property, investments, and overseas operations, needs to be separated so each category is taxed correctly.
The filing deadline is 12 months after the end of the accounting period.19GOV.UK. Company Tax Returns Late filing penalties escalate quickly:
- 1 day late: £100 automatic penalty
- 3 months late: another £100
- 6 months late: HMRC estimates the tax bill and adds a 10% penalty on the unpaid amount
- 12 months late: a further 10% of unpaid tax
File late three times in a row and the £100 penalties jump to £500 each.20GOV.UK. Company Tax Returns – Penalties for Late Filing Persistent non-filing also opens the door to HMRC issuing its own estimate of the tax liability, which almost always comes in higher than the real figure.
Paying the Tax
The payment deadline falls earlier than the filing deadline, and this catches out plenty of companies. Corporation tax is due nine months and one day after the end of the accounting period.21HM Revenue & Customs. Company Taxation Manual – CTM01800 Corporation Tax Due Date of Payment A company with a 31 March year-end has to pay by 1 January, even though the return itself is not due until 31 March the following year. That three-month gap means accounts need to be substantially finalised well before the filing deadline.
Quarterly Instalments for Larger Companies
Companies with annual profits above £1.5 million must pay corporation tax in quarterly instalments rather than in a single lump sum.22GOV.UK. Pay Corporation Tax if You’re a Large Company Instalments are not required if the total liability for the period is under £10,000, or if profits were no more than £1.5 million in the previous year. The £1.5 million figure is divided by the number of associated companies, so a group of three associated companies triggers instalments at £500,000 each.
“Very large” companies with profits above £20 million pay their instalments in the current accounting period rather than the following one, accelerating the timeline further.23GOV.UK. Pay Corporation Tax if You’re a Very Large Company That threshold is also divided by the number of associated companies.
Interest on Late and Early Payment
Overdue corporation tax accrues interest from the day after the payment deadline. As of January 2026, the late payment interest rate is 7.75%, which is the Bank of England base rate plus 4%. HMRC pays repayment interest at 2.75% on overpayments.24GOV.UK. HMRC Interest Rates for Late and Early Payments The gap between the two rates makes underpayment an expensive mistake.
Payment Methods
HMRC accepts payment by BACS, CHAPS, Direct Debit, and personal debit card (no fee). Corporate credit and debit cards are accepted with a non-refundable fee. Personal credit cards are not accepted.25GOV.UK. Pay Your Corporation Tax Bill – By Debit or Corporate Credit Card Online BACS payments take three working days to clear, so leave lead time if paying close to the deadline.
Keeping Records
Companies must retain all financial records and supporting documents until at least the sixth anniversary of the end of the relevant accounting period.26HM Revenue & Customs. Compliance Handbook – Record Keeping How Long Must Records Be Retained For Corporation Tax If HMRC has opened an enquiry, records must be kept until that enquiry is fully resolved, even if that runs beyond six years. Private limited companies face a shorter three-year retention period under the Companies Act 2006, but tax law overrides that for any records needed for corporation tax purposes.
Records must be adequate to support a complete and accurate tax return: bank statements, invoices, receipts, contracts, and payroll data. Failing to maintain or preserve adequate records can result in a penalty of up to £3,000 per return.27HM Revenue & Customs. Enquiry Manual – Penalties Failure to Keep or Preserve Records Approach HMRC does not seek this penalty in every case; it tends to come into play when records have been deliberately destroyed to obstruct an enquiry or where there is a pattern of repeated failures.
Challenging an HMRC Decision
If HMRC issues a tax assessment or penalty you disagree with, you normally have 30 days from the date of the decision letter to lodge an appeal.28GOV.UK. Disagree With a Tax Decision or Penalty Missing that window means demonstrating a reasonable excuse for the delay, which is a higher bar.
For corporation tax, the first step is appealing to HMRC itself. If HMRC does not change its position, you can request a statutory review. This is carried out by a different HMRC officer who had no involvement in the original decision, and the process typically takes around 45 days.29GOV.UK. Disagree With a Tax Decision or Penalty – Get a Review The reviewer can uphold, vary, or cancel the decision entirely.
If the review outcome is still unsatisfactory, you can appeal to the independent tax tribunal within 30 days of the review result letter.29GOV.UK. Disagree With a Tax Decision or Penalty – Get a Review You can also skip the review and go straight to the tribunal after the initial appeal to HMRC, though the review costs nothing and resolves many disputes without a formal hearing.