Taxes aren’t everyone’s cup of tea. But if you run a business in the UK, you need to understand corporation tax. Don’t worry — we’ll break it down in simple terms and even make it a bit fun!
What Is Corporation Tax?
Corporation tax is basically the UK government’s way of saying, “Thanks for doing business — now give us a slice.”
If you run a limited company in the UK, this tax applies to your profits — that’s income after costs and expenses.
Imagine you make £100,000 in a year, and your costs (like rent, salaries, and supplies) are £60,000. That leaves a profit of £40,000. Corporation tax is charged on that £40,000.
Who Needs to Pay?
If your company is:
- A limited company
- A foreign company with a UK branch
- A club, co-operative, or unincorporated association (like a sports club)
Then you’ve got to pay corporation tax.
Sorry, no getting around it!
How Much Do You Have to Pay?
As of 2024, the main rate of corporation tax is 25% for companies with profits over £250,000.
But there’s good news if your profits are lower:
- Profits under £50,000? You pay the small profits rate — just 19%.
- Profits between £50,000 and £250,000? You’ll pay a blended rate somewhere between 19% and 25%.
The exact rate depends on your size, structure, and if you have any associated companies.
When Do You Need to Pay?
This part is very important — miss the deadline, and HMRC will definitely notice.
You must:
- Pay corporation tax by 9 months and 1 day after the end of your accounting period.
- File your tax return within 12 months of the end of that period.
So if your business year ends on 31st March, payment is due by 1st January the next year.
How Do You File and Pay?
Everything is done online now. Big fan of paper forms? Sorry, but HMRC has gone digital.
- Register your company for corporation tax with HMRC.
- Prepare your annual accounts.
- Calculate your profits and tax owed.
- File your Company Tax Return (called a CT600 form).
- Pay your tax electronically.
Sounds like a lot? That’s why many businesses hire an accountant to help.
Common Deductions and Reliefs
The good part — you can reduce your tax bill legally! Here are a few things to look out for:
- Business expenses – salaries, rent, office supplies, travel
- Capital allowances – if you buy equipment or machinery
- R&D tax relief – if you’re doing research and development
- Loss relief – if your business made a loss, you might offset it against future profits
These can really cut down your final bill, so make sure to claim what you’re entitled to!
What Happens If You Don’t Pay?
HMRC is not known for being lenient. If you forget or delay:
- You could get fined
- You may face interest charges on unpaid tax
- Your business could be investigated
It’s better to stay on top of your deadlines than deal with angry letters from the taxman.
Tips to Stay Ahead of Corporation Tax
Here are some simple tips to avoid sleepless nights:
- Keep your books tidy all year long
- Use accounting software or hire an accountant
- Make a calendar with due dates for returns and payments
- Don’t leave filing to the last second
In a Nutshell…
Corporation tax is just part of running a business. While it may not be fun, understanding it makes things easier.
So remember:
- Know your deadlines
- Understand your profit and tax rate
- Use all available reliefs and deductions
- Don’t be afraid to get help when needed
With a little attention and planning, you can keep HMRC happy and your business running smoothly.
