Ah, Corporation Tax, the unavoidable pain in the wallet. But what’s it all about? How much is it and when do you have to pay?
If you’re looking to start a limited company, we thought we’d give you a quick insight into the main points around Corporation Tax so you can be armed with the facts.
Who has to pay Corporation Tax?
An incorporated organisation, such as a limited company, pays Corporation Tax on any profits it makes from doing business. Different types of business pay other taxes, so if you’re a sole trader or running a partnership then you won’t pay Corporation Tax, but you will pay income tax so you’re not off the hook completely!
In a nutshell, UK organisations that fall under any of these categories will generally need to pay Corporation Tax:
- Limited companies
- Clubs or co-operatives, like sports clubs or community groups
- Companies that are based abroad but that have an office or a branch in the UK
How is my Corporation Tax bill worked out?
Companies normally pay Corporation Tax once a year, and submit a Company Tax Return so HMRC can work out how much the business owes. The good news is that your company can claim tax relief against allowable expenses, so it pays Corporation Tax on the profits that are left over after deducting these, rather its entire income.
Not every expense is allowable, but lots of business owners are usually surprised at what they can claim on their tax return!
Business insurance expenses
Any business insurance you need to take out as part of running your company can be claimed as an allowance expense. This includes contents insurance, employers’ liability insurance, public liability insurance, and professional indemnity insurance.
Your salary as a director
Limited company directors often pay themselves a mixture of salary and dividends so they can be more tax efficient. You can offset the salary part against your Corporation Tax bill, too!
Your limited company will make pension contributions as an employer, and can claim tax relief against these just like it does with wages. There’s no limit on what you can pay into a pension, but you can only claim tax relief on your contributions on either £40,000 or 100% of your salary in a year – whichever is lower.
Using your home (or part of it) as an office
More of us are working from home than ever, and it can be a cheaper alternative to paying for additional office or workshop space. If this is the case, then you can usually claim a percentage of your household utility bills and running costs as an allowable business expense.
You’ll need to show that you’re only claiming for the part of the cost which relates to your business though, so double check HMRC’s guidance for working this out, or ask your accountant!
Phone and broadband costs
Broadband and phone lines that are set up exclusively for business use can also be claimed as a business expense when running a limited company. Mobile contracts in particular must be in the company’s name to claim the whole thing. Otherwise, personal contracts need to be apportioned so only calls or data used for work purposes are included as a business expense.
PR and advertising expenses
Any costs involved in marketing-type activities can also be claimed against your Corporation Tax as an allowable company expense.
Professional subscription expenses
Again, this would be anything like magazine subscriptions or membership of professional bodies that directly relate to your role within the company.
Health checks, including eye tests
If any of your employees use computer screens regularly in their job, eye tests and general health checks can also be a claimable expense for limited companies. Any further costs like contact lenses or glasses can only be claimed if they are strictly used as part of their employment and for screen-based working.
Any bank charges that relate to the company, for example account fees, loans, or credit card interest, can also be claimed as an allowable business expense.
Annual staff party expenses
Regularly hold Christmas parties or summer soirees for your staff? The good news is if it’s an annual event that all staff members can join in with, you should be able to claim it as an allowable business expense. It must cost no more than £150 per person though.
Running a company generally needs a lot of kit, from computers and scanners to printers, office furniture and software. Again, anything that’s used specifically for business purposes (yes, even the chair you’re sitting on!) can be claimed as a business expense against your company’s Corporation Tax bill.
Professional development expenses
This would be things like courses you need to go on to boost your personal development, for example training courses. Not all courses can be claimed as an eligible expense, however the obvious ones (like accountancy training to become a chartered accountant) can be.
As long as the travel is solely for work purposes (and we don’t mean travelling from home to work and back!) then it may be claimed as an allowable business expense. Just make sure you have a reliable way of tracking your business miles for your mileage claim.
If you have used your own vehicle (car, van, motorbike etc) to get to a temporary workplace – and you’ve paid for the fuel out of your own pocket – the cost can be claimed back at the current government mileage rates.
It’s not only fuel that comes under allowable expenses either. Other costs that tend to come with work-related travel may well also be claimable. So, this would be things like:
- Accommodation costs
- Parking charges
- Vehicle servicing, insurance and repairs
- Any congestion charges or road tolls
- Public transport costs like flight, train, taxi or bus fares
- Food and drink costs for overnight trips
Who is responsible for submitting a Company Tax Return?
It’s up to the company’s directors to submit a tax return for the business. If you take dividends from the company, then you will also need to submit a Self Assessment to tell HMRC about your personal income.
What are the deadlines for submitting and paying my Corporation Tax bill?
The deadline for submitting your Company Tax Return is different to the deadline for paying the bill.
- You must pay your Corporation Tax bill within nine months and one day following the end of your accounting period for your previous financial year. For example, if your accounting period finishes on 31st March, you will need to pay your Corporation Tax bill by 1st January.
- The deadline for filing your Company Tax Return is 12 months after the end of the accounting period it covers. Yes, the latest date to submit your return is later than the deadline for paying the bill!
What records do I need to keep?
Bookkeeping for your limited company can be a minefield. But when it comes to paying your company’s Corporation Tax it’s important to maintain adequate records. Without them, you’ll struggle to submit your Company Tax Return accurately, which could leave you in hot water with HMRC.
You must keep records about:
- The company’s financial position and accounts
- The company itself (more on this below)
HMRC are likely to check your records for accuracy and to make sure you’re paying the correct amount of tax.
So, beyond bookkeeping, what company details should you keep records of? Well, this would be things like:
- The names and addresses of all directors, shareholders and company secretaries
- Share transactions, such as any share purchases
- The outcome of any shareholder votes and resolutions
- Any mortgages or loans secured against the company’s assets
- Where the company has promised to repay a loan to a specific person or business by a set point in time (‘debentures’)
- Promises the company has made for payments where something has gone wrong and it’s the company’s fault (‘indemnities’)
How do I submit my Company Tax Return?
At the moment Corporation Tax is calculated and paid once a year when the business submits its Company Tax Return. We say ‘at the moment’ because the roll out of Making Tax Digital has Corporation Tax in its sights – currently expected at some point in 2026.
Until that happens, the vast majority of people file their Company Tax Return online. You’ll need the following to hand:
- Your government gateway user ID and password. You can set up an account online when you first use the service if you haven’t already got one
- The Unique Tax Reference (UTR) number for the company
- Your authentication code and password for Companies House (if you are looking to file your accounts at the same time)
- The taxable profit your company has made. This is the total amount of income your company has generated, after expenses and allowances have been taken off.
Corporation tax doesn’t have to be a headache. Learn more about Pandle’s time-saving bookkeeping tools and features, and create your free account.