Corporation tax explained

What is Corporation Tax?

Corporation Tax is the tax UK businesses have to pay on their profits. It applies to:

• limited companies

• any foreign company with a UK branch

• unincorporated organisations that make a profit

You don’t receive a bill for Corporation Tax. You are responsible for working out, reporting and paying the Corporation Tax you owe.

Do sole traders pay Corporation Tax?

No. Sole traders pay Income Tax instead. Income Tax is a personal tax on your earnings from self-employment. Corporation Tax is a business tax for limited companies. Find out more about tax liability for different business structures in the UK.

How much is Corporation Tax in the UK?

The Corporation Tax rate is 19%. This starts from your first penny of profit. There is no business version of the tax-free allowance like individuals get with Income Tax.

How is Corporation Tax worked out?

Corporation Tax is worked out by multiplying your taxable profit by 0.19. So if a business had taxable profits of £10,000, this equates to £1,900 Corporation Tax. 10,000 x 0.19.

The tricky bit is working out what your taxable profits are. There are numerous deductions, depreciations and expenses that you can subtract before you calculate your Corporation Tax bill.

An accountant can be a good investment, often able to identify tax savings for you. If you fancy doing it yourself, take a look at our article on how to calculate a limited company's tax bill.

Do I need to register for Corporation Tax?

If you have started a Limited Company, you need to register for Corporation Tax within three months of starting trading.

You also need to register for Corporation Tax if you are restarting a dormant business. If you are an unincorporated association – like a community group or sports club – you need to write to HMRC.

You must register within 3 months of starting to do business. This includes buying, selling, advertising, renting a property and employing someone. You my be fined if you register late.

How do I register for Corporation Tax?

You must register for Corporation Tax within 3 months of starting to do business.

To do this online, you’ll need your company’s 10-digit Unique Taxpayer Reference (UTR).

• This is posted to your company address by HM Revenue and Customs (HMRC) within 14 days of the company being registered with Companies House (incorporated)

• If you didn’t get one after registering your company, you can request one online

You’ll also need your company’s Government Gateway user ID and password to log in. If you do not have a user ID, you can create one when you log in.

When registering, you’ll need to tell HMRC:

• your company’s registration number

• the date you started to do business (your company’s first accounting periodwill start from this date)

• the date your annual accounts are made up to

After this, HMRC will tell you the deadline for paying Corporation Tax.

How do I pay Corporation Tax?

You’ll need to complete a Company Tax Return when asked to by HMRC. You’ll have to:

• work out your profit or loss for Corporation Tax purposes

• use that information to work out your Corporation Tax bill

Hiring an accountant to prepare and file your tax can be a good idea, but you can also just do it yourself.

You can pay by BACS, Direct Debit, online via debit or corporate credit card, or at your bank or building society.  You can’t pay by post or the Post Office.

What are the deadlines for Corporation Tax?

There are two deadlines to be aware of for Corporation Tax.

• Deadline for returning your tax return. This is 12 months after the end of the accounting period it covers.

• Deadline for paying your Corporation Tax bill. This is depends on your taxable profit. See below.

When do I have to pay Corporation Tax?

This depends on your taxable profits. Be aware that you may be charged interest if you pay HMRC late. But they’ll pay you interest if you pay early!

Your Corporation Tax will be due 9 months and 1 day after the end of your accounting period. Your accounting period is usually the financial year, but in the year you first set up your company, you will have two accounting periods. Speak to your accountant for more information on this.

You will have to pay your Corporation Tax in instalments. There are different rules and deadlines within this. So check https://www.gov.uk/pay-corporation-tax for exact details.

What if I don’t have any Corporation Tax to pay?

You still need to let HMRC know. You’ll need to file a Company Tax Return, even if you make a loss or have no Corporation Tax to pay.

What Corporation Tax relief and allowances can I get?

You can deduct the costs of running your business from your profits before you pay tax.

You can also claim ‘capital allowances’ on certain business expenses. A capital allowance means you can deduct some or all of the value from your profits before you pay tax. These include:

• if you buy assets for your business, such as equipment and machinery

• renovating business premises in disadvantaged areas

• research and development / intellectual property / patents

Find out more about capital allowances at https://www.gov.uk/capital-allowances

Do I need an accountant to work out my Corporation Tax?

No, you can do it yourself. However, a good accountant will have expert knowledge of Corporation Tax and could recommend allowances and discounts that you, yourself, are not aware of. As a result, they may be able to reduce your Corporation Tax bill. You could even use the savings to cover their costs.

Read our article on how to find an accountant.

Where can I find more information about Corporation Tax?

All of the information above is taken from the Gov.uk website. This is the most up-to-date and authoritative place to find information about Corporation Tax. But it is spread across a lot of pages, which is why we’ve summarised it here for you.