Which businesses need to pay corporation tax?
The following types of organisations are liable for corporation tax:
foreign companies with a UK branch or office
clubs, co-operatives and other unincorporated associations (eg sports clubs and community groups)
Sole traders, partnerships and LLPs are not required to pay corporation tax.
What are the corporate tax rates?
In the tax year 2023/24, the standardised corporation tax rate is:
25% for companies with annual profits of £250,000 or more (the ‘standard rate’)
19% for companies with annual profits of £50,000 or less (the ‘small profits rate’ or ‘SPR’)
Companies that have annual profits between £50,000 and £250,000 in annual profits, will pay tax at 25% reduced by a marginal relief. This allows the companies to reduce their corporation tax rate from the standard rate. Use the Government’s tool to calculate your marginal relief for corporation tax.
This applies to all businesses which are liable to pay corporation tax (apart from unit trusts and open-ended investment companies which must pay 20%). Different rates are applicable to ring-fence companies (which make profits from oil extraction or oil rights in the UK or UK continental shelf).
For more information, see the Government’s guidance.
How does a company register to pay corporation tax?
Once a company has registered with Companies House and started doing business (which includes buying, selling, advertising, renting a property and employing people), it must register for corporation tax within 3 months. Late registration may incur a penalty.
Companies can register for corporation tax online using their Unique Taxpayer Reference (UTR). They will also need the company registration number, the date on which they commenced business and the date to which their annual accounts are made up.
Unincorporated associations must write to HMRC to register for corporation tax.
What records must be kept?
Companies liable for corporation tax must ensure that they keep adequate company, financial and accounting records, including:
details of directors, shareholders and company secretaries
register of 'people with significant control' (PSC)
records of all money received and spent by the company
Records must be kept for at least 6 years from the end of the last company financial year to which they relate. The Corporation Tax department of HMRC must be notified if any of these records are lost, stolen or destroyed.
For more information about records that must be kept, see the Government’s guidance.
What profits must corporation tax be paid on?
Companies must pay corporation tax on any profits including:
trading profits (ie money made from the core business)
investment or rental income
capital gains (ie selling assets at a profit - including land, property, equipment and machinery)
Trading losses can be offset against profits but capital losses can only be offset against capital gains.
A Company Tax Return is used to work out a company’s profits and losses and corporation tax bill. For more information, see the Government’s guidance.
What are the deadlines?
The deadlines for paying corporation tax depend on the company’s taxable profits:
for taxable profits of up to £1.5 million, the deadline is 9 months and 1 day from the end of the company’s accounting period
for taxable profits above £1.5 million, corporation tax must be paid in instalments (the deadlines vary depending on if profits are between £1.5 and £20 million or above £20 million)
If there are no profits, a Company Tax Return is still required, however, a 'nil to pay' form must also be submitted to HMRC.
What are the reliefs and allowances?
The costs of running a business can be deducted from profits when preparing company accounts. However, some expenses are not allowed for purposes of corporation tax (eg entertaining clients).
Capital allowances (ie assets that are purchased for use in business) can be deducted from profits. These include equipment, machinery and business vehicles.
Other reliefs include:
research and development (for companies that work on innovative projects in science and technology)
profits from patented inventions - known as the 'Patent Box' (for companies that make a profit from patented inventions)
creative industry reliefs or 'CITR' (for companies that make a profit from theatre, film, television, animation or video games)
relief on disincorporation (if a company is being closed and turning into a sole tradership or partnership)
relief for companies that make capital or trading losses
For more information on allowances and reliefs, see the Government’s guidance.