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, then we thought it might be useful to go over the basics of paying tax on any profits your business makes. We even did a video and everything.
Who has to pay Corporation Tax?
Incorporated organisations, such as limited companies, pay Corporation Tax on any profits they make 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 have an office or a branch in the UK
How is my Corporation Tax bill worked out?
Companies pay Corporation Tax based on the profits they make during their financial year. You’ll need to submit a Company Tax Return so HMRC can work out how much the business owes although, confusingly, the deadline to pay the bill is earlier than the deadline to submit your return.
The good news is that your company can claim tax relief against allowable expenses, so it only pays Corporation Tax on the profits left over after deducting these, rather its entire income. It’s one of a very large number of reasons why we’re always banging on about having decent bookkeeping processes in place for your limited company.
Yes we’re aware that accounting software is horribly boring, but it does help you free up time for more exciting things. And if you record all your expenses accurately you’ll be able to claim it all back properly. So that’s a bonus too.
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. It’s your responsibility even if you appoint an accountant, so keep an eye on them! If you take dividends from the company, then you will also need to submit a Self Assessment tax return 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. Nothing is ever simple, is it?
- 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?
Without good records you’ll struggle to submit your Company Tax Return accurately, which could leave you in hot water with HMRC. As well as recording all your transactions in your bookkeeping, you should keep records about:
- 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.
How much is Corporation Tax?
The Corporation Tax rate currently sits at 25% in the UK, although not all businesses will need to pay this much! Only companies reporting profits over £250,000 will pay the 25% main rate. Companies with profits below £50,000 will pay the Small Profits Rate of 19%. The tax rate for profits between those two thresholds is worked out on a sliding scale (so it will be somewhere between 19% and 25%, depending on how much profit your company makes).
Corporation Tax doesn’t have to be a headache. Learn more about using Pandle to make business accounting easier. Create a free account or use Pandle Pro for £6 a month.
