Corporation tax is the principal charge on the profits of companies that are resident in the United Kingdom, as well as on UK‑source profits earned by non‑resident entities. Administered by HM Revenue & Customs (HMRC), the tax regime is governed by the Corporation Tax Act 2009 and a suite of Finance Acts that update rates, allowances and compliance obligations each fiscal year.
Understanding when a company becomes liable, how the tax is computed, the filing and payment deadlines, and the range of reliefs available is essential for avoiding costly penalties and for effective tax planning. This pillar guide breaks down the legal framework, procedural steps and practical considerations that every UK‑based company needs to know.
Quick Answer: Corporation tax is a tax on the worldwide profits of UK‑resident companies and on UK‑source profits of non‑resident companies. Companies must file a CT600 return each accounting period and pay any tax due within nine months and one day after the period end.
Key Takeaways
- All UK‑resident companies and non‑resident companies with UK‑source profits must pay corporation tax.
- The current corporation tax rate is 25% for profits over £250,000; a small‑profits rate of 19% applies below £50,000, with a marginal relief band in between.
- Corporation tax returns (CT600) must be filed online within 12 months of the accounting period end, and tax must be paid within nine months and one day.
- Available reliefs – such as R&D tax credits, Annual Investment Allowance and group relief – can significantly reduce the effective tax bill.
- Late filing or payment attracts automatic penalties and interest; timely appeals and accurate record‑keeping are essential to mitigate exposure.
What is corporation tax and who must pay it in the UK?
Quick Answer: Corporation tax is a levy on the worldwide profits of companies resident in the UK and on the UK‑source profits of non‑resident companies.
Statutorily, corporation tax is imposed under Part 1 of the Corporation Tax Act 2009 (“CTA 2009”) and the Finance Acts that set the rates. A “company” for tax purposes includes companies limited by shares, guarantee, unlimited companies and foreign companies with a UK permanent establishment (CTA 2009 s1). Resident companies are liable on all profits, while non‑resident companies are liable only on profits arising from UK trading, property or interest.
Exempt entities include charities, certain investment funds and public bodies that meet specific HMRC criteria. Liability arises irrespective of cash flow; however, small‑business rate relief may apply under the Small Companies Rate (Finance Act 2022).
How is corporation tax calculated for UK companies?
Quick Answer: Taxable profit is derived by adjusting accounting profit for tax‑allowed deductions and adding non‑deductible items, then applying the prevailing corporation tax rate.
The calculation follows CTA 2009 s2‑s4: start with profit and loss account figures, deduct qualifying capital allowances (e.g., AIA, FYA), R&D relief, and other reliefs; add disallowable expenses such as entertaining and non‑capitalised provisions. The resulting taxable profit is multiplied by the statutory rate (25% for FY 2024/25 for profits over £250 000, 19% for profits ≤ £50 000, marginal relief in between – Finance Act 2023).
Key exceptions include the “group relief” rules (CTA 2009 s131‑s138) allowing loss sharing, and the “controlled foreign company” provisions (CTA 2009 s787‑s792) which may attribute overseas profits.
When does a company become liable for corporation tax in the UK?
Quick Answer: Liability arises on the accounting period (financial year) end for resident companies, and on the date a UK permanent establishment generates profit for non‑resident companies.
Under CTA 2009 s1 and the Corporation Tax (Accounting Periods) Regulations 2009, a company’s accounting period begins when it starts trading or acquires assets and ends on the accounting reference date (ARD) or earlier if a change of accounting period is notified. The corporation tax charge is due for each accounting period on the profits attributable to that period.
Exceptions include dormant companies (no trading profit) and companies that elect to use a “short accounting period” for the first year (s3 CTA 2009). HMRC may issue a “notice of liability” if the period is not correctly reported.
What are the profit thresholds and filing requirements for small vs large companies?
Quick Answer: Small companies (turnover ≤ £10.2 m, balance sheet ≤ £5.1 m, ≤ 50 employees) file a shorter CT600 and may use the micro‑entity accounts; larger companies must file full accounts and a detailed CT600.
The Companies Act 2006 defines “small” (s382) and “large” (s382) thresholds, which HMRC adopts for corporation tax filing. Small companies can submit the CT600 Short form and may be eligible for the Small Companies Rate (19% for FY 2024/25). Large companies (exceeding any two of the thresholds) must file a full CT600, include a detailed computation, and attach audited statutory accounts.
Filing deadlines differ: small companies have 12 months after the accounting period end to file; large companies must file within 12 months but are subject to additional “large company” reporting under the Companies Act (e.g., strategic report). Late filing incurs penalties under the Companies Act s1000.
How do UK companies claim tax reliefs and allowances such as R&D and Annual Investment Allowance?
Quick Answer: Reliefs are claimed within the CT600 computation by adjusting taxable profit and attaching supporting schedules, with R&D relief requiring a detailed claim form.
R&D tax relief is governed by CTA 2009 s33‑s35 and the R&D Tax Credit Regulations 2002. Companies submit a “R&D Expenditure Credit” schedule (Form CT600 R&D) alongside the return, detailing qualifying costs. The Annual Investment Allowance (AIA) is a 100% deduction for qualifying plant and machinery up to the annual limit (£1 m as of FY 2024/25) under CTA 2009 s56.
Key procedural points: claims must be made within 12 months of the filing deadline; HMRC may request contemporaneous evidence (e.g., project plans). Errors may trigger penalties under the Corporate Tax Penalties Regime (Finance Act 2022).
What are the key corporation tax filing deadlines and payment schedules?
Quick Answer: Returns are due 12 months after the accounting period end; payments are due nine months and one day after the period end for most companies, with quarterly instalments for large or high‑rate payers.
CTA 2009 s8 requires filing the CT600 within 12 months of the accounting period end. Payment of corporation tax is due nine months and one day after the period end (s8(2)). Companies with profits over £1.5 m must pay quarterly instalments (HMRC Notice 700) calculated on the previous year’s liability.
Late filing incurs a £100 penalty, increasing with delay; late payment attracts interest under the Corporate Tax Interest Charge (Finance Act 2023). Companies can apply for a time‑to‑pay arrangement under HMRC’s statutory powers (s33 CTA 2009).
How does a company submit a corporation tax return (CT600) to HMRC?
Quick Answer: Returns are filed electronically via HMRC’s online “Corporation Tax” service or compatible software, using the CT600 form and supporting schedules.
HMRC’s Making Tax Digital (MTD) for corporation tax (effective 2024) mandates electronic filing for all companies with taxable profits over £10 000. The CT600 XML schema must be uploaded through the “Corporation Tax” portal or approved third‑party software. Supporting documents (e.g., R&D claim, capital allowance calculations) are attached as separate XML files or PDFs.
Exceptions: dormant companies may file a “nil” return; companies without a digital record‑keeping system can request a manual filing exemption (rare). Failure to file electronically results in a “failure to submit” penalty under the Corporate Tax Penalties Regime.
How is corporation tax affected for a company with overseas subsidiaries?
Quick Answer: Profits of overseas subsidiaries are generally exempt from UK corporation tax unless the subsidiary is a UK resident or the UK parent elects to include them under group relief.
CTA 2009 s1(2) exempts non‑resident subsidiaries’ profits, but the UK parent may claim “group relief” (s131‑s138) to offset UK profits with overseas losses, provided the subsidiary is a UK‑resident or a “controlled foreign company” (CFC) with UK‑source income. The CFC rules (CTA 2009 s787‑s792) can attribute a proportion of the subsidiary’s profits to the UK parent, creating a tax charge.
Key considerations: double‑taxation treaties may reduce CFC exposure; filing a “CFC return” (Form CT600 CFC) is required where applicable. Failure to disclose can trigger penalties under the Corporate Tax Penalties Regime.
How are losses carried forward or back for corporation tax purposes?
Quick Answer: Trading losses can be carried back one year and forward indefinitely, subject to annual limits and restrictions.
CTA 2009 s64 allows a loss incurred in an accounting period to be carried back to the immediately preceding period, offsetting up to £2 m of taxable profit (as of FY 2024/25). Unused loss may be carried forward indefinitely, reducing future taxable profits on a one‑to‑one basis, subject to “loss restriction” rules (s64(6)) for companies with change of ownership or activity.
Exceptions include non‑trading losses, which are only carried forward, and “group relief” where losses can be surrendered to other group companies (s131). Claims must be made within the filing deadline; late claims may be accepted if reasonable cause is shown, otherwise penalties apply.
How does the UK’s group relief work for corporation tax?
Quick Answer: Group relief allows a UK‑resident company to surrender current‑year losses to, or claim losses from, another group member, reducing the overall corporation tax payable.
Under the Corporation Tax Act 2009 (CTA 2009) ss 131‑138, a “group” is formed when a parent company holds at least 75 % of the ordinary share capital of a subsidiary, and both are UK‑resident. Losses may be transferred only between members of the same accounting period and must be claimed on the loss‑making company’s return. The relief is automatic once the claim is made, subject to HMRC’s anti‑avoidance provisions in s 131(5) CTA 2009.
- Losses cannot be transferred to a company that has previously received relief in the same period.
- Claims must be filed within 12 months of the accounting period end.
What penalties can HMRC impose for late corporation tax filings or payments?
Quick Answer: HMRC may levy a default surcharge, a late filing penalty, and interest on any unpaid corporation tax.
Late filing penalties are set out in the Corporate Tax Penalties Regime 2020 and the Finance Act 1998: a fixed penalty of £100 for a return up to 3 months late, rising to 10 % of the unpaid tax for 3‑6 months, and up to 100 % for more than 6 months. Late payment interest accrues under CTA 1992 s 33A at the statutory rate (Bank of England base rate + 2 %). Additional surcharges apply where there is a pattern of non‑compliance, as detailed in HMRC’s Penalty Manual (CIP‑200).
How can a company appeal a corporation tax assessment or claim a refund?
Quick Answer: A company may lodge a formal objection to an assessment and, if unsatisfied, appeal to the First‑Tier Tribunal (Tax); refunds are claimed via a CT600 amendment or a separate claim.
Under the Taxation (Appeals) Act 1999, an objection must be submitted within 30 days of the assessment notice (or 12 months for a refund claim). The objection is reviewed by HMRC; if rejected, the company can appeal to the First‑Tier Tribunal (Tax) within 30 days of the decision. Refunds are governed by CTA 2009 ss 84‑85; a claim must be made within four years of the end of the accounting period to which the overpayment relates, unless special circumstances apply.
What common mistakes lead to corporation tax overpayment or underpayment?
Quick Answer: Errors often arise from mis‑calculating taxable profits, overlooking reliefs, or failing to apply correct accounting periods.
Typical pitfalls include: (1) not claiming all allowable capital allowances, especially annual investment allowances; (2) neglecting group relief or R&D tax credit eligibility; (3) treating non‑deductible expenses (e.g., client entertainment) as allowable; (4) using an incorrect accounting period start date after a change of accounting reference date; and (5) failing to adjust for tax‑adjusted profit differences when preparing the CT600. These mistakes can trigger both overpayment and exposure to interest or penalties.
Practical Steps & Evidence Checklist
To ensure your company meets its corporation tax UK obligations efficiently, follow these concrete steps and retain the supporting documentation listed. This checklist helps you stay compliant, avoid penalties, and be prepared for any HMRC enquiry.
- Step 1: Register for corporation tax within three months of starting to trade or becoming active. Keep a copy of the registration confirmation (CT‑600 acknowledgment) and your company’s Unique Taxpayer Reference (UTR).
- Step 2: Maintain accurate accounting records for at least six years. Preserve invoices, receipts, bank statements, payroll records, and expense logs in a searchable format.
- Step 3: Prepare and file your annual corporation tax return (CT‑600) and accompanying computations by the filing deadline (12 months after the end of the accounting period). Retain the filed return, supporting schedules, and any HMRC correspondence.
- Step 4: Pay any corporation tax liability by the due date (generally nine months and one day after the accounting period ends). Keep proof of payment such as bank transfer confirmations or HMRC payment receipts.
- Step 5: Conduct a post‑filing review to verify that all reliefs (e.g., R&D tax credits, capital allowances) have been correctly claimed. Archive the calculations, claim forms, and any supporting evidence for future audits.
Frequently Asked Questions
What is the current corporation tax rate in the UK for 2026?
For accounting periods beginning on or after 1 April 2026, the main rate of corporation tax is 25 %. A small‑profits rate of 19 % applies to companies with profits up to £50,000, subject to a marginal relief band between £50,001 and £250,000. These rates are set by the Finance Act 2025 and may be adjusted in subsequent budgets.
When must a company register for corporation tax?
A company must register for corporation tax within three months of either commencing business activities, acquiring assets, or becoming liable to tax. Registration is done online via HMRC’s “Corporation Tax” service, where you will receive a Unique Taxpayer Reference (UTR) that must be quoted on all future filings.
How are losses carried forward or back under corporation tax UK rules?
Trading losses can be carried forward indefinitely to offset future profits of the same trade, subject to a 50 % restriction on the amount that can be used each year. Losses may also be carried back one year to offset profits of the same trade, potentially generating a tax refund. Special loss reliefs, such as group relief, may apply where subsidiaries are part of a corporate group.
What records does HMRC expect a company to keep for corporation tax?
HMRC requires companies to retain sufficient accounting records to substantiate the figures in the CT‑600 return. This includes: sales invoices, purchase invoices, bank statements, payroll records, fixed‑asset registers, depreciation schedules, and details of any reliefs claimed. Records must be kept for at least six years after the end of the accounting period to which they relate.
When is corporation tax payable?
Corporation tax is due nine months and one day after the end of the accounting period for most companies. For example, a company with a financial year ending 31 December 2026 must pay its tax by 1 October 2027. Large companies with a taxable profit exceeding £1.5 million may be required to make quarterly instalments.
Can a company claim R&D tax credits on its corporation tax return?
Yes. Qualifying research and development (R&D) expenditures can be claimed as a credit against corporation tax liability. Small and medium‑sized enterprises (SMEs) may receive a payable credit of up to 33 % of eligible spend, while large companies can claim a 13 % credit. Claims are submitted via the CT‑600 return and must be supported by detailed project descriptions and cost breakdowns.
What is the impact of dividend payments on corporation tax?
Dividends are paid out of post‑tax profits; they do not affect the corporation tax calculation directly. However, when a company distributes dividends, shareholders may be liable for dividend tax on their personal returns. Companies must ensure sufficient retained earnings after corporation tax to cover dividend declarations.
How does the UK’s “digital services tax” interact with corporation tax?
The digital services tax (DST) is a separate levy of 2 % on the gross revenue of certain digital businesses with UK users, applicable where annual UK revenue from these services exceeds £500 million. DST is payable in addition to corporation tax and is reported on a distinct DST return. Companies subject to DST must still file a CT‑600 for corporation tax on their taxable profits.
Conclusion
The corporation tax UK framework obliges companies to register, maintain comprehensive records, file accurate returns, and settle tax liabilities within strict deadlines. Core principles include the statutory tax rate, allowable deductions, loss relief mechanisms, and specific reliefs such as R&D credits. Compliance hinges on diligent bookkeeping, timely filing of CT‑600, and prompt payment of tax due. Failure to adhere can result in penalties, interest, and increased scrutiny from HMRC.
Given the complexity of the legislation and the frequent updates to rates and reliefs, companies should conduct regular tax health checks and seek advice from qualified tax advisers or solicitors experienced in UK corporate taxation. Tailored professional counsel will help optimise tax positions, mitigate risk, and ensure that all statutory obligations are met.
Legal Disclaimer
This article provides general educational information regarding United Kingdom (England, Wales, Scotland, Northern Ireland) law and does not constitute formal legal advice, legal representation, or the creation of an attorney‑client relationship. Laws and regulatory guidance are subject to frequent legislative amendments and judicial interpretation. Individuals and organizations facing legal proceedings or disputes should seek personalized counsel from a qualified solicitor, advocate, or attorney in their jurisdiction.