How Corporation Tax applies to limited companies

Your limited company pays Corporation Tax (CT) on any profits it makes during its financial year. CT is applied to the profits of all UK companies, regardless of size. Here we look at how companies are taxed, and the deadlines you should be aware of as a director.

The Basics

When registering a new company with Companies House, HMRC is automatically informed of the new entity’s existence.

A Corporation Tax registration form (CT41G) is sent to your company’s registered office, along with information on how to get started, together with a Unique Taxpayer Reference (UTR) for your company.

As well as limited companies, other entities also pay CT, including foreign companies with a UK branch, clubs, co-operatives, and other unincorporated organisations

Within three months, you must provide HMRC with further information about the company, such as what type of business you are running, when you started trading, and the date when your annual accounts will be made up to. This task is often carried out by an accountant.

What tax rates apply to your company?

Corporation Tax rates increased in April 2023, after many years of cuts. Before this date, all companies had a flat 19% CT rate.

In 2024/5, companies pay between 19% and 25% Corporation Tax, depending on their profits during a financial year.

If your annual profits are £50,000 or less, you pay 19%. The full 25% rate applies to profits above £250,000 per year.

Between these thresholds, there is a system of marginal relief – the effective rate is 26.5% between £50,000 and £250,000.If you or your company control any other companies – you must be aware of the Associated Companies rules. For example, if you control two companies, the £50,000 threshold is halved.When is my company’s ‘year end’?

Interestingly, although the personal tax year runs from the 6th of April to the 5th of April each year, the CT tax year runs from the 1st of April until the 31st of March each year.

This so-called ‘fiscal year’ is different from your company’s accounting period, which will typically start in the month when your company was first incorporated.

For several reasons, your accountant may recommend changing your company’s accounting period ‘end date’ – this can easily be done by shortening the current year’s period, but the period cannot be extended.

How to account for Corporation Tax

To calculate the profit upon which CT is applied, your accountant will add up all of your business income, bank interest, capital, and other gains and subtract any legitimate expenses and reliefs.

Your company’s accounting period is likely to span two ‘fiscal years’ (see above) so, if different tax rates apply between each year, (e.g. 21% in Year 1 and 20% in Year 2), your CT liability will be apportioned using each rate, according to the number of days your accounting period spans each fiscal year.

Filing and payment deadlines

It may surprise you to learn that the Corporation Tax return (CT600) itself must be filed online within 12 months of your company’s accounting period.

However, the company (if annual profits are £1.5m or less) must pay any tax it owes to HMRC within nine months and one day following the end of its accounting period.

This is the only major tax where the payment and filing deadlines do not fall on the same day.

You can settle your tax bill via several online methods, although you can no longer do so by post.

HMRC recommends setting up a direct debit to reduce the chances of missing the deadline – which seems very sensible!

Importantly, if your company is trading but you don’t have a CT liability for the year in question, you (or more likely, your accountant) must inform HMRC that you have ‘nil to pay’.

Keeping accurate records

All companies have to keep the following information safe for a minimum of six years;

• Details of your company’s assets, liabilities, income, expenditure and any ‘stock in hand’ at the end of your company’s financial year.
• Business records, such as bank statements, annual accounts, invoices, orders, delivery notes, and any other relevant information, should be kept confidential.

Unsurprisingly, HMRC operates a penalties regime for committing any number of CT-related offences, such as failure to late filing, and incorrect CT600 submissions. Find out more on the HMRC site.

Further Information

Try HMRC’s introduction to Corporation Tax here.

Find your company’s tax liability using our Limited Company Profits Calculator.