A lot of new business owners assume Corporation Tax is something only big companies like Tesco or Barclays need to worry about. In reality, if you run a limited company in the UK - even a one-person operation - Corporation Tax is very much your responsibility.

In this guide, we’ll break down what Corporation Tax actually is, how the current rates work, when and how to pay it, and other key things you need to know when you’re running a small business. 

What is Corporation Tax UK?

Corporation Tax is a tax that UK limited companies (and a few other types of organisations) pay on their profits. Just to recap, your business’ ‘profits’ include:

• Money your business makes from trading
• Investment income (like interest or dividends)
• Chargeable gains (profits from selling assets such as property or shares)

Think of it as the business equivalent of income tax. Instead of paying tax personally on your salary or self-employed income, a limited company pays Corporation Tax on its profits.

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Who needs to pay Corporation Tax?

Corporation Tax applies to all limited companies registered in the UK, as well as foreign companies with a UK branch or office.

If you’re a sole trader or a partnership, Corporation Tax doesn’t apply to you. Instead, you’ll pay Income Tax through a Self Assessment tax return. That’s one reason many entrepreneurs think carefully about whether to remain a Sole Trader or incorporate as a Limited Company.

How to register for Corporation Tax

When you set up a limited company, you’re automatically registered with Companies House. But you’ll also need to register with HMRC for Corporation Tax within 3 months of starting business activity (i.e. trading, advertising, or employing staff).

You can do this online via the Government Gateway. HMRC will then send you a Unique Taxpayer Reference (UTR), which you’ll need for filing your company’s tax return. For more details, you can read our full step-by-step guide to registering for Corporation Tax here.

Corporation Tax vs. dividends

One question small business owners often ask is how Corporation Tax ties in with dividends. The sequence is straightforward once you see it in practice: first, your company pays Corporation Tax on its profits. Whatever’s left after that can be paid out to shareholders as dividends. Those dividends don’t escape tax entirely, though - shareholders are taxed on the income they receive, at personal dividend tax rates.

This is why tax planning becomes so important for directors. Striking the right balance between salary and dividends can make a big difference to your overall take-home pay and your company’s efficiency.
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Current Corporation Tax rates (for 2025/26)

Since April 2023, the UK has had a tiered system for Corporation Tax:

• 19% small profits rate – For companies with profits up to £50,000
• 25% main rate – For companies with profits over £250,000
• Marginal relief – For profits between £50,001 and £250,000, giving a gradual increase between 19% and 25%

So if your small business makes £30,000 in taxable profit, you’ll pay 19% Corporation Tax. If you make £100,000, you’ll pay an effective rate somewhere between 19% and 25%.

How to calculate Corporation Tax

Corporation Tax isn’t calculated on your turnover - it’s based on your taxable profits. So, to calculate it you’ll need to:

1. Work out your profit:

Take your company’s income and subtract allowable business expenses.

2. Adjust for tax purposes:

Add back any disallowable expenses (things HMRC doesn’t count as deductible, like client entertaining).

3. Apply capital allowances:

Deduct things like equipment or machinery purchases where allowances apply.

4. Include other income or gains:

Such as rental income or asset sales.

5. Apply reliefs or losses:

Claim any carried-forward trading losses or reliefs you’re entitled to.

6. Calculate how much you owe:

Apply the appropriate Corporation Tax rate to the final figure.

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When do you pay Corporation Tax?

Unlike other taxes, Corporation Tax doesn’t come with a bill - it’s up to you to know how much you owe and pay it on time.

There are a couple of deadlines you absolutely need to know:

• The payment deadline: 9 months and 1 day after the end of your company’s accounting period.

• The filing deadline (Company Tax Return): 12 months after the end of the accounting period.

For example, if your company year end is 31st March 2025, your Corporation Tax payment is due by 1st January 2026, and your tax return must be filed by 31st March 2026.

Larger companies (with profits above £1.5 million) may need to pay in installments, but most small businesses pay annually.

What happens if you miss the deadline?

If you don’t file or pay your Corporation Tax on time, HMRC can issue late filing penalties (which start at £100 and increase the longer your return is overdue) and charge daily interest (currently 7.75%, as of October 2025).

Repeated lateness can lead to bigger fines and more HMRC scrutiny, so it’s always best to file and pay on time.

What counts as allowable expenses?

To reduce your Corporation Tax bill, you’ll want to make sure you’re claiming every allowable expense. Common examples include:

• Staff salaries and pensions
• Office rent and utilities
• Business travel and mileage
• Professional fees (like accountants and solicitors)
• Marketing and advertising costs
• Equipment, software and subscriptions

Remember: expenses must be “wholly and exclusively” for business purposes. Anything personal won’t count. We’d recommend consulting a tax advisor like one of our friendly team at Crunch to make sure you’re claiming all the expenses you’re entitled to.

Common reliefs and allowances

The good news is that not every pound of profit is treated equally. The UK tax system includes several Corporation Tax reliefs designed to encourage investment and innovation by reducing your bill if you qualify. 

For example, the Annual Investment Allowance lets businesses deduct up to £1 million a year in qualifying equipment costs. Companies developing new products or processes might qualify for R&D tax relief, while loss-making businesses can often carry those losses forward to reduce future bills. And if your company makes money from patented inventions, the Patent Box scheme offers a much lower 10% rate on those profits. 

It’s worth speaking to an accountant to make sure you’re not missing out on these types of allowances and reliefs. 

How to make Corporation Tax less stressful

Corporation Tax can feel intimidating, but with the right systems in place, it’s manageable. Here are a few of our top tips:

• Use accounting software: It’ll track income, expenses, and calculate tax liabilities automatically.
• Keep your records up to date: Don’t wait until year-end to sort receipts and invoices.
• Set money aside regularly: Treat Corporation Tax as a fixed cost, not an afterthought.
• Work with an accountant: A professional tax expert (like one of our friendly Limited company accountants at Crunch) can help you claim reliefs, avoid mistakes and make sure you pay the right amount of tax.

The bottom line

So, what is Corporation Tax in the UK? It’s the tax your company pays on its profits - and it’s unavoidable if you run a limited company. The good news is that by understanding the basics, knowing your deadlines, and keeping on top of your records, you can stay compliant without stress.

And if you’d rather not wrestle with calculations or HMRC paperwork, Crunch’s team of expert accountants can take care of it for you - so you can focus on growing your business instead of worrying about tax returns.

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