How to Calculate Corporation Tax

Published: 1st March 2025

Corporation Tax is the tax businesses pay on their profits. For limited companies, calculating Corporation Tax is a vital part of managing finances and staying compliant with HMRC rules.

What is Corporation Tax?

Corporation Tax is charged on taxable profits, which are calculated for each accounting period. These profits include income from trading activities, such as selling products or providing services, which are typically the main source of revenue for most businesses. Taxable profits also include income from investments, such as dividends or interest, and any profit made from selling or disposing of assets like property, equipment or shares.

Unlike individuals, businesses don’t have a tax-free allowance, so Corporation Tax is charged on all taxable profits from the very first pound. This tax is applied annually for each accounting period, which is usually aligned with your company’s financial year.

Who pays Corporation Tax?

Corporation Tax applies primarily to limited companies registered in the UK, including private limited companies (Ltd) and public limited companies (PLC). However, other organisations may also need to pay Corporation Tax, even if they are not structured as limited companies.

These include housing associations, membership organisations, clubs and societies and co-operatives. Additionally, non-resident companies that conduct business or earn income in the country, such as rental income from UK property, are also required to pay Corporation Tax.

What are the Corporation Tax rates?

The Corporation Tax rate you pay depends on your company’s profits. Since April 2023, companies with profits of £50,000 or less pay a rate of 19%. Companies with profits over £250,000 are subject to the main rate of 25%.

For businesses with profits between £50,001 and £250,000, Marginal Relief may apply. This provides a gradual increase in the tax rate from 19% to 25%, depending on the exact level of profits. It’s important to note that if your company is part of a group or has associated companies, the thresholds for Marginal Relief are divided among all the companies in the group.

How is Corporation Tax calculated?

To calculate Corporation Tax, you first need to determine your company’s total profits for the accounting period. This includes income from trading activities, investment income and any chargeable gains from the sale of assets.

Next, you deduct allowable expenses. These are costs that are “wholly and exclusively” for business purposes, such as employee wages, office rent, utilities, marketing expenses and business travel. If your company has invested in equipment or vehicles, you may also be able to claim capital allowances to account for depreciation.

Once all allowable expenses and relevant allowances have been deducted, you’ll have your taxable profits. At this point, the appropriate Corporation Tax rate is applied based on your profit level.

Filing and paying Corporation Tax

To report your taxable profits and calculate how much Corporation Tax you owe, you must file a Company Tax Return (CT600) online with HMRC. This must be completed within 12 months of the end of your accounting period.

Corporation Tax payments are due earlier – within nine months and one day of the end of your accounting period. For example, if your accounting period ends on 31 March 2025, your tax payment is due by 1 January 2026.

All Corporation Tax payments must be made electronically. Common payment methods include Faster Payments, CHAPS and direct debit.

What if my company isn’t making a profit?

If your company hasn’t made a profit, you won’t owe Corporation Tax, but you must still file a Company Tax Return to declare this. Filing a nil return is a legal requirement, even if no tax is due.

In some cases, if your company has made a loss, you may be able to claim loss relief. This allows you to offset the loss against future profits, potentially optimising your tax position in the coming years.

Because Corporation Tax can be complex, consulting a tax professional is the best way to ensure accuracy. These specialists can help you file your tax return, identify available reliefs and ensure compliance with HMRC rules while optimising your tax position.