UK corporation tax: what it is and how to calculate it

Published Monday 13 May 2025

What is corporation tax?

Corporation tax is the tax your limited company (or a foreign company with a UK branch or office) pays on its annual profits.

Unlike sole traders or partnerships (who pay income tax), your limited company pays corporation tax because it’s legally separate from you, and your company finances are separate from your personal ones.

HMRC decides the corporation tax rates and rules. It’s your responsibility as a small business owner to pay the right amounts by the deadlines.

Here’s an overview of corporation tax from HMRC

How much is corporation tax in the UK?

The corporation tax you pay depends on the profit your business makes in its accounting period. The corporation tax bands change over the years, so you need to keep track of these.

Here’s how they currently stand:

• If your business’s profit is less than £50,000, you pay the small profits UK corporate tax rate of 19%. This rate hasn’t changed in recent years.
• If your business makes more than £250,000 in profit, you must pay the main UK corporate tax rate of 25%. This increased from 19% in 2023.

For businesses with profits between £50,000 and £250,000, the rate depends on whether you get what the HMRC calls marginal relief, which is a gradual increase in the rate of tax you pay as your profit rises.

• If you don’t get marginal relief, you must pay the main UK corporate tax rate of 25% (this includes non-UK resident companies).
• If you do get marginal relief, your corporate tax rate will gradually rise from 19% up to 25%, in line with your level of profit. Here’s HMRC info on marginal relief and who’s eligible.

Also:

• Your rate of corporate tax also depends on your accounting period dates, and if you have any associated companies. Your accountant can clarify this for you.
• If you run a ‘ring-fenced company’ – your company profits from oil extraction or oil rights – you pay different UK corporate tax rates. Here are the corporation tax rules for companies in the UK oil and gas sector.

Confirm the latest corporation tax rates at the HMRC

How to calculate your corporation tax

You don’t get a bill telling you how much corporation tax to pay. Instead, you need to keep accurate accounting records, file a company tax return, and pay the right amount directly to HMRC – on time!

Fill in your company tax return (your CT600) with accurate profit figures and all relevant deductions, and the corporation tax owed will be calculated for you based on the figures provided. But let’s look at what the calculation involves so you can estimate your tax bill.

1. Work out your taxable profits

Many factors go into calculating your tax, but here’s a simple starting point:

Turnover – allowable expenses = your taxable profits

• Your turnover is your sales revenue – the money your business receives from selling goods or services.
• Allowable expenses are costs that are wholly and exclusively for business use, such as salaries, office rent, and machinery.
• You may also be able to claim capital allowances on items like machinery, equipment, and business vehicles. These let you deduct the cost of qualifying assets from your taxable profits. Many of these deductions are claimed in full in the first year, while others – like the Writing Down Allowance -- are claimed gradually over time.

Here’s HMRC advice on calculating your taxable profits. Ask your accountant or bookkeeper for help (or to do this for you) too.

2. Identify the right corporation tax rate

Look at the UK corporation tax thresholds and bands (see above) to figure out your corporation tax rate. Use HMRC’s marginal relief calculator to find out whether you're eligible for marginal relief and what your lowered rate could be.

Check out HMRC’s marginal relief calculator

3. Calculate the corporation tax you need to pay

Now take your taxable profits and apply the correct Corporation Tax rate.

• Profits below £50,000 are taxed at 19%.
• Profits above £250,000 are taxed at 25%.
• For profits between these amounts, you may qualify for Marginal Relief, which has an effective tax rate of 26.5% and gradually increases your tax rate from 19% to 25%.

For example, if your taxable profits are £100,000, your Corporation Tax would be calculated as:

First £50,000 taxed at 19% = £9,500 Next £50,000 taxed at 26.5% = £13,250

Total Corporation Tax = £9,500 + £13,250 = £22,750

You owe £22,7500 to HMRC in UK corporation tax. Use a calculator, especially if your profits are in the marginal band – it’s worth getting an accurate idea of what you owe.

Check out this more detailed guidance from HMRC.

How do you pay your corporation tax to HMRC?

Once you’ve filed your company tax return, you must pay your corporation tax through HMRC’s online payment portal (you can’t pay by post).

• Set up a direct debit or same-day bank transfer to save time. You’ll need your 17-character corporation tax payment reference number for the particular accounting period. You’ll find this number in messages from HMRC and in your online account.

Even if you’ve made a loss this period (and therefore have no tax to pay), you still need to file a company tax return so HMRC can update its records.

Here’s the HMRC page where you pay your tax bill

Deadlines for paying corporation tax

Don’t forget: the payment deadline comes before the due date for filing your tax return.

• Your filing deadline is 12 months after your company’s accounting period ends.
• Your payment deadline is usually 9 months and one day after your accounting period ends.

Leave plenty of time for both your filing and payment. When paying your tax bill, allow 3 working days for HMRC to process a direct debit once you’ve set this up.

If you don’t pay the right amount on time, you’ll be charged penalties. The amounts increase over time, starting at £100 for the first day you’re late.

Your tax advisor can help you with your company return filing and tax calculations. Find one in the Xero advisor directory

The corporation tax reliefs you might be able to claim

As we saw above, when working out your taxable profits you can deduct not only your allowable expenses and capital expenses, but other forms of tax relief. This lowers your tax bill and improves your cash flow.

Here are other things some other forms of corporation tax relief you might be able to claim:

• R&D (research and development) tax credits
• Loss relief, where you offset your financial losses against your past or future profits
• Patent box relief for intellectual property

Your accountant can advise you on whether these apply to your business.

Fill out the relevant sections of your company tax return and supply any supporting documents HMRC asks for.

Learn more about allowances and tax relief on this HMRC page

Face your corporation tax payments with confidence

Here are some tips to help keep you in control of your corporation tax calculations.

Keep organised financial records

First things first, you need a system to keep accurate records of your earnings and expenses.

Put dates and deadlines in your diary

It’s a good idea to add your corporation tax filing and payment due dates to your calendar, and add reminders a few weeks before.

Stay in the loop on UK tax laws

HMRC sometimes changes the corporation tax bands, rates, and rules – visit the website for the latest info.

Double-check your calculations

When calculating your corporation tax, double-check your figures. Accounting software like Xero can help you.

Put money aside to pay your taxes

Estimate what you owe HMRC in corporation tax ahead of time so you can save enough cash for your payment.

Where to get help with your corporation tax

There’s more info on HMRC’s website or ask a professional tax advisor for help.

Xero’s HMRC-recognised accounting software makes your corporation tax job simple. Xero automates your tax calculations to give you the right figures every time. And thanks to being in the cloud, Xero is highly collaborative – so you and your tax advisor or accountant can jump online to work on your finances anytime.

See how Xero can help with your taxes and more