Corporation Tax Breakdown
Once you’ve entered your figures, here’s what you’ll see:
- Total Revenue – your gross business income
- Total Expenses – all allowable deductions
- Taxable Profit – what HMRC actually taxes you on
- Corporation Tax Payable – your final tax bill
- Profit After Tax – what stays in your business
No jargon. No confusion. Just clear numbers.
How Corporation Tax is Calculated
Corporation tax isn’t complicated once you understand the basic steps. Here’s how it works in plain English:
Step 1: Work out your profit Start with your total revenue and subtract your allowable business expenses. That gives you your taxable profit.
Step 2: Adjust for allowable expenses Not every cost qualifies as a deduction (more on that below). HMRC only allows expenses that are “wholly and exclusively” for business purposes.
Step 3: Apply the correct tax rate Depending on your profit level, you’ll pay either 19%, 25%, or somewhere in between if marginal relief applies.
Step 4: Check if marginal relief applies If your profits fall between £50,000 and £250,000, you won’t pay a flat 25%. HMRC reduces your tax gradually through a mechanism called marginal relief. Our calculator applies this automatically.
Corporation Tax Rates & Thresholds (2023–2027)
This is one of the most searched topics for UK limited company owners, and with good reason. Tax rates changed significantly in April 2023.
| Taxable Profit | Tax Rate |
|---|---|
| Up to £50,000 | 19% (Small Profits Rate) |
| £50,001 to £249,999 | Marginal Relief applies |
| £250,000 and above | 25% (Main Rate) |
These rates apply from 1 April 2023 onwards and are expected to remain in place through to 2027.
What is Marginal Relief? It’s a taper between the two rates. The closer your profits are to £50,000, the closer your effective rate is to 19%. The closer you are to £250,000, the closer it is to 25%. Our calculator handles this automatically, so no manual formula is needed.
Important: If your company has associated companies (for example, you own or control other businesses), the thresholds are divided between them. Speak to an accountant if this applies to you.
Example Corporation Tax Calculation
Let’s make this real. Here’s a straightforward example using the 2024/25 rates:
Scenario:
- Revenue: £100,000
- Allowable Expenses: £40,000
- Taxable Profit: £60,000
Because this profit falls between £50,000 and £250,000, marginal relief applies.
- Tax at 25% on £60,000 = £15,000
- Minus marginal relief = approximately £13,650 corporation tax payable
- Profit after tax: £46,350
If the same business had only £45,000 in taxable profit, the full 19% small profits rate would apply, giving a tax bill of just £8,550. That £15,000 difference in profit results in a very different tax outcome, which is exactly why planning matters.
Allowable Expenses & Tax Deductions
Knowing what you can and can’t deduct is where real tax savings happen.
What you CAN deduct:
- Staff salaries and wages including employer’s National Insurance contributions
- Office rent and utilities if used for business
- Equipment and machinery usually via Annual Investment Allowance (AIA)
- Software and subscriptions for business tools and platforms
- Professional fees such as accountancy and legal advice
- Travel costs including business mileage and train fares (not commuting)
- Marketing and advertising such as websites, ads, and printed materials
What you CANNOT deduct:
- Client entertainment and hospitality
- Fines and penalties including HMRC penalties
- Personal expenses disguised as business costs
- Dividends paid to shareholders
A quick note on capital allowances: Large equipment purchases aren’t always deducted in full in the year you buy them. They may need to be spread over time. However, the Annual Investment Allowance currently lets most businesses deduct up to £1 million of qualifying plant and machinery in the year of purchase. If you’re making significant capital investments, it’s worth talking to an accountant about timing.
When & How to Pay Corporation Tax
Getting your tax right is one thing. Paying it on time is another. Here are the key deadlines you need to know:
Payment deadline: Corporation tax must be paid 9 months and 1 day after the end of your accounting period. So if your year ends on 31 March 2024, you must pay by 1 January 2025.
Filing your CT600: Your Company Tax Return (form CT600) must be filed with HMRC within 12 months of your accounting period end, which is slightly later than the payment deadline. You’ll need your accounts and tax computations ready.
How to pay:
- Online via your HMRC business tax account
- Bank transfer using your 17-digit Corporation Tax reference
- CHAPS for same-day payments
What if you pay late? HMRC charges interest from the day after the payment deadline. Late payment interest is currently set at 7.25% per annum (as of 2024). Persistent late payment can also trigger penalties and formal compliance checks.
Frequently Asked Questions
What is Corporation Tax?
Corporation Tax is a tax on the profits of UK limited companies and some other organisations. It’s charged on trading profits, investments, and gains from selling assets.
Who pays Corporation Tax?
All UK-resident limited companies, and some clubs, co-operatives, and unincorporated associations. Sole traders and partnerships pay Income Tax instead, not Corporation Tax.
What is an accounting period?
It’s the time period your company’s profits are assessed over, usually 12 months and aligned with your financial year. It doesn’t have to run January to December.
What is marginal relief?
Marginal relief is a tax reduction for companies with profits between £50,000 and £250,000. It softens the jump from 19% to 25% by tapering the effective rate gradually across that range.
Can I reduce my Corporation Tax bill?
Yes, legitimately. Claiming all allowable expenses, making pension contributions, timing capital expenditure, and carrying forward losses are all legal ways to reduce your bill. An accountant can help you do this compliantly.
What happens if I miss the payment deadline?
HMRC charges interest immediately after the deadline passes. If you also fail to file your CT600, you’ll face additional late filing penalties starting at £100 and rising the longer it’s left.
Do all companies pay Corporation Tax?
No. Companies with no taxable profits in a period, for example a dormant company or one that made a loss, won’t have a tax liability, though they may still need to file a return.
Need help working out your company’s tax position?
Our team at MyIVA specialises in small business accountancy across the UK. Get in touch today.