Topics:
Business Management
Services:
Corporate Tax Planning,
Tax Reliefs including R&D
Corporation tax is an unavoidable reality for businesses operating in the UK. Whether you’re a seasoned entrepreneur or a first-time business owner, understanding your corporation tax obligations is crucial for keeping your business compliant and financially healthy.
This guide will break down corporation tax in simple terms, covering who pays it, how it's calculated, key deadlines, and practical tips to optimise your tax efficiency.
What Is Corporation Tax?
Corporation tax is a tax levied on the profits of UK-based businesses. Unlike personal income tax, there is no tax-free allowance for companies, every pound of taxable profit is subject to taxation.
Who Pays Corporation Tax?
Corporation tax applies to:
- Limited companies registered in the UK
- Foreign companies with a UK branch or office
- Clubs, co-operatives, and associations such as membership organisations and sports clubs
Sole traders and partnerships do not pay corporation tax but instead pay income tax on their business profits.
Current Corporation Tax Rates (2024)
As of 1 April 2023, the UK operates a two-tiered corporation tax system based on taxable profits:
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19% for businesses with profits of £50,000 or less (small profits rate)
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25% for businesses with profits over £250,000
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A marginal relief system applies to profits between £50,001 and £250,000, resulting in a gradual increase from 19% to 25%.
How Marginal Relief Works
If your company earns between £50,001 and £250,000, you don’t jump straight to 25%. Instead, you get marginal relief, which lowers the effective tax rate.
Key Corporation Tax Deadlines
When you start a business make sure you add these into your diary to avoid late filing penalties:
1. Register for Corporation Tax
Newly formed businesses must register for corporation tax with HMRC within 3 months of starting to trade.
2. Filing Your Company Tax Return (CT600)
- Your company tax return is due 12 months after your accounting period ends.
- The return must include a full set of accounts and tax computations.
3. Paying Corporation Tax
- If your taxable profits are under £1.5 million, corporation tax must be paid within 9 months and 1 day after your accounting period ends.
- If your taxable profits exceed £1.5 million, tax payments are made in quarterly instalments.
Allowable Expenses & Deductions
One of the easiest ways to legally reduce your corporation tax bill is by claiming allowable expenses. These are business costs you can deduct before calculating taxable profits.
Common Allowable Expenses:
- Staff salaries and pension contributions
- Office rent, utilities, and business insurance
- Marketing and advertising costs
- Business travel expenses (excluding personal travel)
- Professional fees (accountants, solicitors, consultants)
- Software and IT expenses
Capital Allowances on Equipment & Vehicles
If you buy business assets such as machinery, computers, or vehicles, you can claim capital allowances instead of treating them as regular expenses. The Annual Investment Allowance (AIA) allows businesses to deduct up to £1 million of qualifying capital expenditures per year.
Tax Reliefs & Incentives for Businesses
To encourage growth, innovation, and investment, the UK government offers various tax relief schemes for businesses.
1. R&D Tax Relief
If your company invests in research and development (R&D), you may be eligible for tax relief:
- Small & Medium Enterprises (SMEs): Claim up to 186% of qualifying R&D expenses as a deduction.
- Large companies: Can claim under the R&D Expenditure Credit (RDEC) scheme, offering a tax credit worth 20% of eligible R&D costs.
2. Super-Deduction & Full Expensing
Until March 2026, businesses can claim full expensing, meaning they can deduct 100% of eligible capital expenditures in the year of purchase.
3. Creative Industry Tax Reliefs
If your business operates in film, TV, video games, or animation, you may be eligible for enhanced tax reliefs on production costs.
4. Patent Box Relief
Companies that earn profits from patented inventions can reduce their corporation tax to just 10% under the Patent Box scheme.
Common Corporation Tax Mistakes to Avoid
Don't ignore these common pitfalls and avoid unnecessary costs to your business:
- Missing deadlines – Late filings can result in penalties from HMRC.
- Not keeping accurate records – You must keep records for at least 6 years.
- Mixing personal & business expenses – HMRC is strict about non-business costs.
- Overlooking available tax reliefs – Many businesses miss out on valuable deductions.
5 Key Tips to Optimise Your Corporation Tax Bill
To make Corporation Tax as smooth and efficient as possible follow these five tips:
1. Maximise capital allowances – Use the Annual Investment Allowance and full expensing where possible.
2. Make pension contributions – Contributions to employees’ pensions are tax-deductible.
3. Claim all allowable expenses – Review your business costs regularly.
4. Use R&D Tax Credits – If applicable, claim R&D relief to reduce your tax burden.
5. Work with a Chartered Accountant – They can help identify tax-saving opportunities.
Here to guide you
Understanding and managing your corporation tax obligations doesn’t have to be overwhelming. By keeping track of deadlines, claiming the right reliefs, and working with an expert, you can minimise your tax liabilities while keeping your business fully compliant.
If you need tailored tax planning advice, Haines Watts can help you navigate corporation tax complexities, ensuring your business operates efficiently and tax-effectively. Get in touch today!
