How much is Corporation Tax for a limited company?

Corporation Tax rates changed from 1 April 2023. No longer is there a single rate of Corporation Tax for companies, there are a variety of rates.

Corporation Tax is one of the main forms of tax for a limited company and it is important as a limited company owner that you understand how much Corporation Tax your company will be required to pay, and you understand ways you could minimise your Corporation Tax bills.

In this blog, we’ll cover the basics about Corporation Tax, Corporation Tax rates, how the levels of company profits will affect your Corporation Tax bill and importantly how to reduce your Corporation Tax bill.

Allowable Expenses and Deductions

Reduce your ltd company tax bill by claiming allowable expenses:

• Staff salaries and employer’s National Insurance
• Rent, utilities, and business rates
• Professional fees (accountants, solicitors)
• Office equipment and capital allowances

aiming all eligible expenses ensures you only pay corporation tax on your true profits.

What is Corporation Tax?

UK-based limited companies are required to pay Corporation Tax on their profits from both UK earnings and earnings from abroad.

Limited companies, foreign companies with a UK-based offices or branches, or a club or unincorporated association such as a sports centre or community groups are also liable to pay corporation tax.

Corporation tax is paid on taxable profits including money your company or association makes from:

• doing business (‘trading profits’)
• investments
• selling assets for more than they cost (‘chargeable gains’)

Your Corporation Tax responsibilities

There are specific things you must do to work out, pay and report your Corporation Tax to HMRC. HMRC do not send out Corporation Tax bills to companies so you must:

• 1. Register for Corporation Tax when you start a business or restart a dormant business. (Unincorporated associations must write to HMRC).
• 2. Keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.
• 3. Pay Corporation Tax or report if you have nothing to pay by your deadline - this is usually 9 months and 1 day after the end of your ‘accounting period’.
• 4. File your Company Tax Return by the deadline - this is usually 12 months after the end of your accounting period.

Your accounting period is normally the same 12 months as the financial year covered by your annual accounts.

How much is Corporation Tax for a limited company?

How much Corporation Tax you pay will depend on the level of business profits in your company. From April 2023 the Corporation Tax system became more complex because of the introduction of marginal relief. This marginal relief provides a gradual increase in the effective Corporation Tax rate and you will need to try and forecast your annual profits for the coming year if you wish to understand your Corporation Tax bill in future.

Corporation Tax rates

The corporation tax rates for 2023/24 and the 2024/25 financial year continue to follow a tiered structure introduced on 1 April 2023. These changes affect limited company tax bills based on the level of taxable profits:

• Small Profits Rate: If your limited company earns profits of £50,000 or less, the corporation tax rate remains at 19%.
• Main Rate: For companies with taxable profits above £250,000, the tax rate is 25%.
• Marginal Relief: If your profits fall between £50,000 and £250,000, marginal relief applies. This relief tapers the rate gradually between 19% and 25%, depending on your exact profit level. It’s designed to ensure a smoother increase in your ltd company tax liability rather than a sudden jump.

Associated Companies Rule

If you operate more than one limited company, they are treated as associated companies. This means the profit thresholds for corporation tax are divided among the number of associated entities.

For example, if you own two companies, your thresholds are split in half:

• Lower threshold: £25,000
• Upper threshold: £125,000

This affects how much corporation tax you pay on each company, as marginal relief will be calculated using these reduced bands.

Corporation Tax rates 2023/24 and 2025/26 :

Need help working out your tax? Use our UK corporation tax calculator to see how to work out corporation tax based on your company profits.

Marginal Relief Explained

What is marginal relief and how does it affect your limited company tax?

If your company’s taxable profits fall between £50,000 and £250,000, you won’t pay a flat rate. Instead, marginal relief reduces your effective corporation tax rate, so you pay a rate somewhere between 19% and 25%.

To calculate this precisely, you can use the official HMRC marginal relief calculator.

Example (for illustrative purposes only):

• Taxable profit: £100,000
• Effective tax rate after Marginal Relief: approx. 22.75%

How is Corporation Tax Calculated?

How to work out corporation tax for your limited company:

1. Calculate your taxable profits: This is your company’s income minus allowable business expenses and deductions.

2. Apply the correct rate: Use the small profits rate, main rate, or marginal relief as appropriate.

3. No tax-free allowance: All profits are taxable for limited companies.

Example:

If your company made £70,000 profit, you’ll pay 19% on the first £50,000 and a higher rate on the remainder, with marginal relief applied to the difference.

Who cannot claim Marginal Relief?

You cannot claim Marginal Relief if:

• you’re a non-UK resident company.
• you’re a close investment holding company.
• your profits (including distributions from unrelated, unassociated companies ) go over £250,000.

Working out your Corporation Tax rate and marginal relief

The easiest way to calculate your Corporation Tax rate, is to speak to your accountant or use the Governments Marginal Relief Calculator.

Associated companies

The upper and lower limits for taxable profits are reduced depending on the number of ‘associated companies’, the taxable profit limits being divided equally among all the associated companies.

For example, if your company has two associated companies, the limits are divided by 3. The lower limit becomes £12,500 and the upper limit becomes £62,500.

Associated companies can be located anywhere provided they meet the ‘51% group company’ test. Dormant companies are exempt from this rule and holding companies may become exempt depending on the circumstances.

Corporation Tax on chargeable gains

When selling or disposing of a business asset, you may need to pay Corporation Tax on any profits (or chargeable gains) that you make.

How to pay Corporation Tax

For companies with taxable profits up to £1.5 million, you must pay your Corporation Tax 9 months and 1 day after the end of your accounting period. Your accounting period is usually your financial year, but you may have 2 accounting periods in the year you set up your company.

If your taxable profits are more than £1.5 million, you must pay your Corporation Tax in instalments.

Check the rules and deadlines on the HMRC website here.

• if your taxable profits are between £1.5 million and £20 million
• if your taxable profits are more than £20 million

Paying Corporation Tax on time is imperative. If you do not pay your Corporation Tax bill on time, you may pay interest.

Ways to pay your Corporation Tax bill

You can pay your Corporation Tax bill via direct debit, online or telephone banking via Bacs or at your bank or building society.

What if you can’t pay your Corporation Tax bill?

If cannot pay your tax bill by the Corporation Tax deadline, you should contact HMRC immediately. If HMRC believes that you are financially able to pay, then you will be asked to pay in full. However, is HMRC believe you genuinely cant pay, they may suggest setting up a payment plan or ‘Time to Pay’ arrangement to spread the cost of your tax bill.

Corporation Tax allowances and reliefs

You can deduct the costs of running your business from your profits before tax when your accountant prepares your company’s accounts.

Some expenses are not allowed for Corporation Tax, for example entertaining clients - so these get added back into your profits when your accountant prepares your Company Tax Return.

How can I minimise my Corporation Tax?

There will be tax planning opportunities to minimise your corporation tax bill. Here at dns accountants, we have an experienced tax planning team, who can advise you specifically for your business.

How can I minimise my Corporation Tax?

• Increasing payments such as salary and pension which will reduce your profits in the year.
• Purchasing assets such as plant and machinery.
• Claiming all business expenses.
• Claiming business mileage.
• Using the work-from-home allowance.
• Claiming R&D Tax Relief.
• Claiming Patent Box Tax Relief.
• Offering share schemes to employees.
• Claiming all available loss reliefs.
• Paying for subscriptions and training costs.
• Paying for a staff party or event.

What Happens If You Submit Inaccurate Information with Your Corporation Tax Return?

Submitting incorrect details in your Corporation Tax return can lead to penalties, interest charges, or even an HMRC investigation.

Potential Consequences:

• Penalties: Up to 100% of the extra tax due depending on whether the error was careless, deliberate, or concealed

• Interest: Charged on any underpaid limited company tax

• Investigations: HMRC may review your accounts and previous returns

How to Avoid Issues:

• Keep accurate financial records

• Double-check figures before filing

• Use a professional accountant or a trusted UK corporation tax calculator

Corporation Tax Filing and Payment Deadlines

Don’t miss your Corporation Tax deadlines—late filing or payment can lead to penalties and interest.

Key Deadlines:

• Payment: Pay your corporation tax within 9 months and 1 day after your company’s accounting period ends.

• Filing: Submit your company tax return (CT600) within 12 months of the end of your accounting period, or within 3 months if HMRC issues a notice to deliver.

Summary

Always seek advice from our tax experts, who can advise you on ways in which you can minimise your Corporation Tax bill by considering things like timing of profits, making pension contributions, claiming all business expenses and making use of all other tax reliefs available to you.

For help and advice on Corporation Tax in the UK or any other tax planning queries, contact our team and book a call with us

Speak with an expert

Any questions? Schedule a call with one of our experts.

Book a call