What is corporation tax? A guide for UK limited companies
Corporation tax affects every UK limited company's bottom line. Learn what it is, current rates, and how to calculate what you owe.
Written by Jotika Teli—Certified Public Accountant with 24 years of experience. Read Jotika's full bio
Published Friday 7 November 2025
Table of contents
Key takeaways
• Calculate your corporation tax by determining taxable profits (turnover minus allowable expenses), applying the correct rate (19% for profits under £50,000, 25% for profits over £250,000, or marginal relief for amounts between), and paying directly to HMRC by the deadline.
• Register for corporation tax using your company's 10-digit Unique Taxpayer Reference (UTR) that HMRC sends to your registered address within weeks of Companies House registration, then file annual Company Tax Returns (CT600).
• Meet critical deadlines by paying corporation tax 9 months and 1 day after your accounting period ends, and filing your tax return within 12 months of the period end to avoid penalties starting at £100.
• Reduce your tax bill by claiming all allowable business expenses, capital allowances for equipment purchases, and available reliefs such as R&D tax credits or loss relief against past or future profits.
What is corporation tax?
Corporation tax is the tax your limited company pays on its annual profits to HM Revenue and Customs (HMRC). If you run a foreign company with a UK branch, you also pay this tax.
Your limited company pays corporation tax instead of income tax because:
- Legal separation: Your company is legally separate from you as an individual
- Financial separation: Company finances are distinct from your personal finances
- Corporate structure: Limited companies have different tax obligations than sole traders or partnerships
You must calculate, file, and pay your corporation tax by HM Revenue and Customs deadlines.
Who pays corporation tax?
If you run a limited company in the UK, you're required to pay corporation tax on your profits. This also applies to most other incorporated bodies, including:
- Public limited companies (PLCs)
- Clubs, societies, and associations
- Most foreign companies with a UK branch or office
This is different from sole traders and partnerships, who pay income tax and National Insurance on their business profits through a Self Assessment tax return. Because a limited company is a separate legal entity from its owners, its profits are taxed separately.
How much is corporation tax in the UK?
Corporation tax rates depend on your company’s annual profits. The current UK rates are:
- Small profits rate: 19% on profits under £50,000
- Main rate: 25% on profits over £250,000
- Marginal rate: 19% to 25% (with relief) on profits between £50,000 – £250,000
Rate changes: The main rate increased from 19% to 25% in April 2023. Small profits rate remains unchanged at 19%.
If your profits are between £50,000 and £250,000, you may be eligible for marginal relief. This means your tax rate increases gradually as your profits rise.
Also:
- Your rate of corporate tax also depends on your accounting period dates, and if you have any associated companies. Ask your accountant if you are unsure about your rate.
- 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.
Corporation tax registration
This includes activities such as buying or selling goods, advertising, renting property, or employing staff.
You can register online using your company’s 10-digit Unique Taxpayer Reference (UTR). HM Revenue and Customs will send this to your company’s registered address, usually within a few weeks of your company being registered with Companies House.
Once registered, you'll be responsible for filing a Company Tax Return (CT600) each year.
How to calculate your corporation tax
You calculate what you owe and pay HM Revenue and Customs directly. You will not receive a bill.
The process:
- Calculate: Work out your taxable profits and apply the correct rate
- File: Complete your company tax return (CT600) with accurate figures
- Pay: Submit payment directly to HMRC by the deadline
Your Company Tax Return (CT600) will calculate the final amount owed, but understanding the calculation helps you estimate your tax bill and plan ahead.
1. Work out your taxable profits
Taxable profits calculation:
Turnover – allowable expenses = taxable profits
Key components:
- Turnover: Total sales revenue from goods or services
- Allowable expenses: Business costs that are wholly and exclusively for business use
- Capital allowances: Deductions for business assets like machinery and equipment
Common allowable expenses:
- Staff salaries and benefits
- Office rent and utilities
- Professional fees and insurance
- Business equipment and machinery
Capital allowances let you deduct asset costs from taxable profits. Many qualify for 100% first-year deductions, while others use Writing Down Allowances over time.
Read HM Revenue and Customs advice on calculating taxable profits. Ask your accountant or bookkeeper for help if you need it.
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.
3. Calculate the corporation tax you need to pay
Apply the correct tax rate to your taxable profits:
Rate structure:
- 0 – £50,000: 19% (small profits rate)
- £50,001 – £250,000: marginal relief applies (effective rate 26.5%)
- £250,001 and above: 25% (main rate)
Calculation example (£100,000 taxable profits):
- First £50,000 × 19% = £9,500
- Next £50,000 × 26.5% = £13,250
- Total corporation tax = £22,750
Marginal relief gradually increases your tax rate from 19% to 25% as profits rise between the thresholds, preventing sudden rate jumps.
You owe £22,750 in UK corporation tax. Use a calculator to get an accurate figure, especially if your profits are in the marginal band.
How do you pay your corporation tax to HMRC?
You must pay your corporation tax through HM Revenue and Customs’ online portal. Postal payments are not accepted.
Payment methods:
- Set up a direct debit for automatic payment
- Make a bank transfer for same-day or faster payments
- Pay by debit or credit card through the online service
What you'll need:
- Your 17-character corporation tax payment reference
- Payment amount and accounting period details
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.
If you do not pay the right amount on time, you may face penalties. These start at £100 for the first day you are late and increase over time.
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 some other forms of corporation tax relief you might be able to claim:
- Loss relief, where you offset your financial losses against your past or future profits
- Patent box relief for intellectual property
Ask your accountant if these reliefs apply to your business.
Fill out the relevant sections of your company tax return and supply any supporting documents HMRC asks for.
Face your corporation tax payments with confidence
Use these tips to manage your corporation tax calculations.
Keep organised financial records
Keep accurate records of your earnings and expenses.
Put dates and deadlines in your diary
Add your corporation tax filing and payment due dates to your calendar, and set reminders a few weeks before.
Stay in the loop on UK tax laws
HM Revenue and Customs sometimes changes the corporation tax bands, rates, and rules. Visit the website for the latest information.
Double-check your calculations
When calculating your corporation tax, double-check your figures. Xero accounting software 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
You can find more information on the HM Revenue and Customs website or ask a professional tax advisor for help.
Xero accounting software is recognised by HM Revenue and Customs. Xero automates your tax calculations and gives you accurate figures every time. Because Xero is cloud-based, you and your tax advisor or accountant can work on your finances together, anytime.
Managing your corporation tax with confidence
Understanding corporation tax is a key part of running a limited company. By keeping accurate records, knowing your deadlines, and calculating your profits correctly, you can manage your tax obligations with confidence and avoid any surprises.
Using accounting software can make the process much simpler. Xero helps you track your income and expenses in real-time, making it easier to calculate your taxable profit and prepare for your tax return. Start your free trial of Xero accounting software
FAQs on corporation tax
Here are answers to a few common questions about corporation tax.
What's the difference between corporation tax and income tax?
Corporation tax is paid by limited companies on their profits. Income tax is paid by individuals on their personal income, which includes salary and dividends drawn from a company, or profits from a sole trader business.
What happens if my company makes a loss?
If your company makes a loss, you won't have to pay any corporation tax. You may be able to use that loss to reduce your tax bill in a future profitable year. You still need to file a Company Tax Return to report the loss to HMRC.
How can I reduce my corporation tax bill?
You can lower your corporation tax bill by claiming all your allowable business expenses, capital allowances for assets you've purchased, and any relevant tax reliefs like R&D tax credits. An accountant can help you make sure you're claiming everything you're entitled to.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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