When do UK businesses need to pay corporation tax?
Whether you’re running a startup or managing an established business, understanding when and how to pay Corporation Tax can sometimes feel like a maze. But don’t worry, we’re here to clear things up and guide you through the process. Get this right and you will save yourself time, penalties, frustration and confusion in the future.
This blog will tell you what are the deadlines for Corporation Tax, how to pay, how to stay on top of the payments, and how an accountant can help keep your business compliant.
What is corporation tax?
Corporation Tax in the United Kingdom is a direct tax charged on the taxable profits of businesses operating within the country. This applies to both domestic companies registered in the UK and foreign enterprises with a permanent establishment or branch office in the region. As of the 2023/24 financial year, the standard Corporation Tax rate was set at 25% for businesses with profits of over £250,000, a rise from the previous 19% rate. Businesses with under £50,000 profit continue to pay the 19% rate and there is a sliding percentage scale for profits between £50,000 and £250,000.
Who needs to pay?
All incorporated businesses, such as limited companies, are required to file and pay Corporation Tax on their annual profits. The obligation also extends to certain unincorporated entities, including:
- Cooperative societies
- Trade unions and housing associations
- Non-profit organisations
- Member-based clubs or groups
This tax framework ensures a broad range of profit-generating entities contribute to national revenues, regardless of their formal corporate structure.
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Understanding UK corporation tax brackets
The UK operates a tiered Corporation Tax system, where the rate a business pays depends on its annual taxable profits. Here’s how it works for the current financial year:
- Small profits rate (19%): Applies to companies with profits up to £50,000.
- Main rate (25%): For businesses with profits exceeding £250,000.
- Marginal Relief: Businesses earning between £50,000 and £250,000 benefit from a sliding scale that eases the jump between rates. Instead of a sudden leap to 25%, their effective tax rate increases gradually, ensuring fairness for mid-sized businesses.
How does marginal relief work?
This relief acts as a bridge between the two rates. The closer profits are to £250,000, the higher the average tax rate, but it will always be less than 25%. For example:
- A company with £100,000 profits pays an effective rate of 22.75% after marginal relief.
- At £250,000, the full 25% rate applies.
Why does this matter?
The system prevents smaller businesses from being disproportionately taxed as they grow, while larger firms contribute at the main rate. Planning profits and understanding these thresholds can help optimise tax liabilities, especially for businesses near the £50k or £250k margins.
Key deadlines to pay corporation tax
There are four deadlines to pay corporate tax:
Accounting Period End | Payment Deadline |
31 March | 1 January the next year |
30 June | 1 April the next year |
30 September | 1 July the next year |
31 December | 1 October the next year |
New businesses:
Your first accounting period starts on incorporation and can’t exceed 12 months. Payment is due 9 months and 1 day after this period ends.
Late corporation tax filing penalties
Failing to submit your Corporation Tax return on time triggers escalating penalties from HMRC:
- 1 day late: £100 fine.
- Over 3 months late: A further £100 penalty.
- Over 6 months late: 10% of unpaid tax owed added to your bill.
- Over 12 months late: An additional 10% of unpaid tax.
Repeated offences:
If your returns are late three consecutive times, the initial £100 penalties jump to £500 each.
Claimable business expenses
When calculating taxable profits, companies can deduct necessary operational costs strictly for business purposes. Examples include:
- Employee travel (e.g., mileage)
- Business-related accommodation
- Professional training for staff
Expenses with personal use (e.g., a company car used privately) must be reported as benefits. Costs like client entertainment or non-business assets (equipment, vehicles, etc.) are not deductible. However, long-term assets may qualify for capital allowances, spreading deductions over multiple years.
Tax reliefs to reduce your bill
1. Innovation Incentives
- R&D Relief: For companies investing in scientific or technological innovation.
- Patent Box: Apply a reduced 10% tax rate on profits from patented inventions.
- Creative Industries Relief: Enhanced deductions for sectors like film, TV, or gaming.
2. Structural Changes
- Disincorporation Relief: Avoid tax on asset transfers when dissolving a limited company to become a sole trader or partnership.
3. Loss Relief
- Offset losses from trading, property income, or asset sales against future or past profits.
4. Marginal Relief
- For profits between £50,000–£250,000 (post-April 2023), easing the jump from 19% to 25% tax rates. (Pre-2015 rules applied to profits up to £1.5 million.)
5. Goodwill Relief
- Partial relief on purchases of business-related goodwill and assets acquired after April 2019.
Maximising deductions and reliefs requires ensuring expenses are purely business-related and leveraging schemes tailored to your industry or activities. Professional advice can help navigate complex rules and optimise liabilities.
How to adjust your corporation tax payment?
If your business is unable to pay its Corporation Tax bill in full, HMRC offers flexibility through its Time to Pay (TTP) arrangement. This scheme lets eligible businesses spread payments over an agreed period.
Steps to take:
- Act immediately: Contact HMRC’s Business Payment Support team at 0300 200 3820 before missing a deadline.
- Received a payment letter? Respond promptly to the issuing HMRC office to negotiate terms.
Why this matters:
Proposing a realistic plan can prevent late penalties and legal action. HMRC typically cooperates with businesses that engage early and transparently.
How accountants simplify corporation tax?
Accountants can make filing Corporation Tax easier. Here’s how they help:
- Deadline management: Automated reminders for filings and payments.
- Accurate calculations: Maximising reliefs like R&D credits or marginal relief.
- Filing support: Submitting error-free CT600 returns.
- Payment plans: Negotiating with HMRC if cash flow is tight.
- Year-round advice: Proactive tax planning to reduce liabilities.
Conclusion
Staying compliant with Corporation Tax doesn’t have to be overwhelming. With a clear understanding of your deadlines, responsibilities, and a bit of expert support, you can keep things running smoothly and grow your business without any stress.
Do you need help in making tax planning and compliance easy for you? Contact us today to keep your business on track.
