Understanding Corporation Tax for Small Businesses: A UK Guide

If you’ve set up a limited company in the UK, corporation tax is one of your most significant financial responsibilities. Unlike sole traders, limited companies pay corporation tax on their profits, and getting it right is essential to avoid penalties. In this guide, we break down what corporation tax is, how to register, and when to pay.

What is Corporation Tax?

Corporation tax is a business tax charged on the profits of limited companies. From April 2023, the main rate is 25%, though smaller companies with profits under £50,000 benefit from a 19% small profits rate.

Registering for Corporation Tax

You must register your company with HMRC within three months of commencing trade. This can be done online through your Government Gateway account, and HMRC will then confirm your company’s tax reference number.

Filing and Paying

Corporation tax is due 9 months and 1 day after your company’s financial year ends. You’ll need to file a Company Tax Return (CT600) annually, and payment must be made electronically to HMRC.

Allowances and Reliefs

You can reduce your taxable profit by claiming for allowable expenses such as salaries, rent, and other business costs. You may also qualify for R&D tax relief, capital allowances, and other schemes.

Why It Matters

Understanding corporation tax ensures your business stays compliant and avoids unnecessary penalties. Proper planning can also reduce your tax bill and help keep more money in your company.