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Understanding Corporation Tax

One key area of managing business finance is Corporation Tax. This is a tax paid on the profits that a company generates while trading.

There are different rules regarding who needs to pay Corporation Tax and how much they are liable for.

Do I need to pay Corporation Tax?

You are obligated to pay Corporation Tax if you are one of the following:

Corporation Tax rates

The current tax rate for Corporation Tax is 25 per cent. However, it can change in each tax year, so it is important that you keep track of what the percentage is for each year.

If your company made more than £250,000 in profits, then you must pay this standard 25 per cent rate.

However, if your company made less than £50,000 in profits, then you are entitled to pay the lower tax rate of 19 per cent.

If your company made between £50,000 to £250,000 in profits, then you may be entitled to the marginal rate.

This is a rate which provides a gradual increase in Corporation Tax between the lower rate and main rate, so that your company is taxed proportionally to its profits.


Before declaring how much profits your company has made, you are given allowances which include things such as the costs of running the business.

You are also allowed a capital allowance claim, which covers the costs of necessary items relating to your business such as equipment, machinery, and vehicles.

It should be noted that expenditure on the entertainment of your employees or clients spent on the company’s behalf is not included in these allowances.

There are also other kinds of tax relief which your company may be entitled to as well, including trading losses, The Patent Box, and Research and Development Relief.

How do I start paying Corporation Tax?

First, once your business is incorporated as a limited company you must register for Corporation Tax. If you fall into the bracket of being an unincorporated business, such as a partnership or sole trader, then you will instead pay tax via a Self-Assessment tax return on your own income derived from your business.

It is then important for you to keep track of all accounting records and prepare a company tax return to work out how much Corporation Tax to pay.

After doing this, you can then pay the Corporation Tax that you owe. This is usually nine months and one day after the end of your ‘accounting period’ (your accounting period is normally the same 12 months as the financial year covered by your accounts). For taxable profits of over £1.5 million, then you must pay HMRC in instalments.

Finally, you file your Corporation Tax return deadline, which is usually 12 months after the end of the accounting period.

For help working out your business’s tax obligations and annual accounts, contact us today.




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