So, you’ve started a business. Congrats! Whether you’re launching a software startup, running a small design agency, or testing the waters with an online shop, you’ve likely been hit with a wave of excitement, nerves, and… paperwork. Somewhere between opening your business bank account and setting up a website, you’ve probably heard the term “Corporation Tax” thrown around.
Yeah, that one.
Let’s break it down. What is Corporation Tax? When do you pay it? How do you avoid getting slapped with penalties you didn’t see coming?
Over the last 10 years of working as a financial consultant to small and mid-sized businesses in the UK, I’ve helped hundreds of new business owners wrap their heads around this piece of the tax puzzle. Some were panicking after getting an HMRC letter they didn’t understand. Others just wanted to get it right from day one. Either way, most had the same question:
“Okay, so what exactly do I owe… and when?”
What Is Corporation Tax?
If your business is registered as a limited company in the UK, you’ll need to pay Corporation Tax on your profits. That includes:
- Trading profits (from your main business activities)
- Investment income (like interest)
- Capital gains (profits from selling assets like equipment or property)
This tax isn’t new. In fact, it’s been a financial backbone of the UK system since 1965. But every year, updates are made. As of April 2025, Corporation Tax remains at 25% for companies with profits over £250,000, and 19% for those with profits under £50,000. Companies with profits between those benchmarks pay on a sliding scale. This “marginal relief” makes calculating tax a little more complex for mid-tier earners.
Quick note: Sole traders and partnerships don’t pay Corporation Tax. Instead, their profits are taxed through Self Assessment.
When Do You Need to Pay?
Unlike PAYE or VAT, Corporation Tax doesn’t get deducted automatically. You must:
- Register for Corporation Tax with HMRC within three months of starting to trade.
- File a Company Tax Return (CT600) annually. This must be done online, using HMRC-approved software.
- Pay your tax bill within nine months and one day after your company’s accounting period ends.
That third one surprises a lot of people.
Let’s say your company’s financial year ends on March 31st. Your Corporation Tax payment is due by January 1st of the following year.
It’s a subtle deadline, but miss it, and HMRC starts charging interest the very next day.
What Can You Deduct From Your Taxable Profits?
Ah, the good part. Business expenses.
Corporation Tax is based on profits, not total income. That means you subtract allowable expenses first. These can include:
- Staff salaries
- Rent and utility bills for your office
- Professional services (accountants, lawyers)
- Software subscriptions
- Travel expenses (train tickets, mileage, hotels)
- Marketing costs
One client of mine. A freelance motion designer turned limited company director. Cut his taxable profits in half just by accurately tracking allowable business costs. He’d always lumped expenses into a vague “miscellaneous” column and ended up overpaying. Once we gave those costs the attention they deserved? Boom. Lower tax bill, more retained earnings.
Important: Personal spending (like your daily coffee habit or Netflix subscription) doesn’t count. Even if it “inspires” you.
How Do You File a Company Tax Return?
This is where people get anxious, and I totally get it. Filing a CT600 isn’t as intuitive as logging into your banking app.
You’ll usually need to:
- Prepare your statutory accounts. A formal set of financial documents showing your company’s performance.
- Calculate your Corporation Tax liability, including any marginal relief you qualify for.
- Submit your Company Tax Return online, via HMRC’s website or approved accounting software.
Having a qualified accountant or tax advisor here can be a game-changer. Yes, it’s an expense. But if that expert saves you from an underpayment fine (or better yet, helps you claim reliefs you didn’t know existed), it pays for itself.
Speaking of Reliefs… Are You Missing Any?
New business owners often overlook tax reliefs that could save them serious money. A few worthwhile ones to explore:
- R&D Tax Relief: If you’re innovating. Creating new technology, software, or processes. You might qualify for research and development credits.
- Annual Investment Allowance (AIA): This lets you deduct the full cost of certain equipment and machinery.
- Super-deduction (ended March 2023): Previously popular but no longer active, just to clarify in case you’re catching up on old info.
Claiming reliefs isn’t an automatic thing. You must apply and justify your claim. That’s where having a tax-savvy pair of eyes helps.
Penalties: What Happens If You Get It Wrong?
HMRC doesn’t play around with late paperwork or payments. Here’s what can happen:
- Late filing: £100 fine after the first day, increasing after three and six months.
- Late payment: You’ll pay interest currently set at 7.75% (as of April 2025).
And let’s say you underreport your profits. Deliberately or not. There’s a risk of more serious penalties. I once helped a startup director correct a submission that wrongly classified subcontractor payouts. The fix prevented a £4,000 fine. They called it a “lucky escape.” I’d call it a lesson.
Tip for First-Timers: Set Up a Company Calendar
Here’s what I tell every new client.
Set calendar reminders for:
- Your company’s year-end
- The 9-month payment deadline
- The 12-month filing deadline
- Dates to check with your accountant
Throw in a quarterly review to assess profits and cash flow. This will help you stay on top of tax prep rather than scrambling in December with a shoebox of receipts.
Final Thoughts
Corporation Tax isn’t necessarily complicated. But it does demand attention. Think of it like maintaining your car. Ignore it, and you’ll pay for it later. Keep it in check, and you’ll drive smoother… with a lot fewer surprises down the road.
If you’ve just launched your business, or are thinking about it, take the time now to get your tax responsibilities straight. It saves headaches. It saves money. And it sets your company up with a level of professionalism that investors and clients instinctively trust.
Need help sorting your Corporation Tax or just want a second opinion before your first submission? Get in touch with a certified accountant or reach out to HMRC directly. Better safe than sorry.
Frequently Asked QuestionsWhat qualifies as “profit” for Corporation Tax?
Profit, in HMRC’s eyes, means taxable trading profit. It’s the money left after you subtract allowable business expenses and any reliefs or deductions from your company’s income. Note: profit isn’t always the same as the money in your bank account. You might have invoiced income that hasn’t yet been received.
Can I delay paying Corporation Tax if I don’t have the money?
Not really. HMRC expects payment within the deadline, regardless of your cash situation. If you can’t pay, it’s best to contact them early to arrange a payment plan rather than waiting for penalties to stack up.
Do I still need to file a return if my company made no profit?
Yes. Even if your company made zero profit or didn’t trade during the year, you may still need to file a Company Tax Return (or at least inform HMRC that it’s dormant). Always double-check with an accountant or HMRC directly.
What’s the difference between Corporation Tax and VAT?
Corporation Tax is charged on your profits, while VAT (Value Added Tax) is a consumption tax on the goods and services you sell. They’re separate tax systems, and registering for one doesn’t exempt or enroll you in the other.
Should I hire an accountant, or can I do it myself?
You can handle Corporation Tax yourself, especially with good accounting software. But if your accounts get complex, you’re unsure about reliefs, or just want peace of mind, a certified accountant is worth the cost. They can spot things you might miss. And help you stay compliant.