When you run a limited company, one of the most important new concepts to understand is Corporation Tax. Sole traders pay Income Tax on their profits. A limited company works differently. It exists as a separate legal entity and pays its own tax on the profits it makes.
This tax is called Corporation Tax.
For new directors, this can seem like another layer of complexity. However, the principles of Corporation Tax are quite logical. This guide explains what Corporation Tax is, how it is calculated, and when it needs to be paid.
What is Corporation Tax?
Corporation Tax is a tax that is levied on the taxable profits of a limited company. Taxable profits cover more than just day-to-day trading income. They also include profit from investments and the sale of assets, which HMRC calls chargeable gains.
It is important to remember that this tax is paid by the company, not by you personally. The money you take out of the company as a salary or dividend will be subject to your own personal taxes (Income Tax, National Insurance, or dividend tax). These are separate from Corporation Tax.
How is Corporation Tax Calculated?
Corporation Tax is calculated on your company’s taxable profit, not its total income. To calculate your taxable profit, take your total income and then deduct all your allowable business expenses and any other available tax reliefs.
For example, if your company had an income of £100,000 and allowable expenses of £40,000, its taxable profit would be £60,000. The Corporation Tax would then be calculated on this £60,000.
The main rate of Corporation Tax is 19% for companies with profits up to £50,000. For companies with profits over £250,000, the rate is 25%. If your company’s profits are between £50,000 and £250,000, you pay tax at the main rate of 25%, but you can claim a relief known as “Marginal Relief”.
The Deadlines for Paying and Filing
One of the most confusing aspects of Corporation Tax for new directors is that the deadline for paying your tax is before the deadline for filing your tax return.
- Deadline for paying Corporation Tax: 9 months and 1 day after the end of your company’s accounting period.
- Deadline for filing your Company Tax Return (CT600): 12 months after the end of your company’s accounting period.
Your accounting period is usually 12 months long and will align with your company’s financial year. This means you have to estimate your tax liability and pay it before you have even filed the final return. This is a common area where new directors can get caught out.
How to File and Pay
To pay, you must first file a Company Tax Return (CT600) with HMRC. This is a detailed form that reports your company’s income, expenses, and the calculation of your taxable profit. The CT600 must be filed online, along with a copy of your annual accounts being submitted to Companies House.
Once the return has been filed, you can pay your Corporation Tax bill via bank transfer, direct debit, or through your company’s online banking service.
When Getting Advice Can Help
Corporation Tax is a complex area with strict deadlines and the potential for penalties if you get it wrong. You are not expected to be a tax expert, and getting professional advice is essential to ensure your company is compliant and as tax-efficient as possible.
If you would like calm, practical support, Penney’s Accountancy works with UK small businesses in Farnborough and the surrounding areas. We can prepare your annual accounts, calculate your Corporation Tax liability, and file your Company Tax Return for you, ensuring everything is correct and on time.
Want to Learn More in Your Own Time?
For those who want to build their confidence and understand these topics in more detail, Penney’s Finance School offers an online, self-paced business and finance course. It covers everything from company setup to cash flow and tax, allowing you to learn at your own pace.
Important information
The information provided in this article is intended as general guidance for UK businesses only and reflects UK tax legislation and HMRC guidance as of February 2026.
Tax rules and business requirements can change, and individual circumstances vary. Before acting on any of the information above, we recommend speaking to a qualified accountant who can provide advice tailored to your specific situation.