How Much is Corporation Tax for a Limited Company?

PHS Team

24 Feb, 2025

As a limited company owner, you must meet several responsibilities, including paying Corporation Tax UK on time. Missing the deadline can result in penalties from HMRC.

For the 2024-25 tax year, corporation tax rates in the UK vary based on the level of profits. Small businesses lower tax rate of 19%, while companies with profits exceeding taxed at the main rate of 25%. 

Companies with profits between these thresholds qualify for marginal relief, which reduces their tax liability gradually.

What is Corporation Tax?

Corporation tax is a tax on the profits of UK-registered companies. Unlike personal income tax, businesses do not have a tax-free allowance, meaning all taxable profits are subject to corporation tax. 

The tax applies to, UK limited companies registered with Companies House. Foreign companies with branches or offices in the UK. Certain clubs, cooperatives, and associations.

Sole traders and partnerships do not pay corporation tax, instead, they pay income tax on business profits through self-assessment.

Current Corporation Tax Rates in the UK 

Corporation tax rates depend on the company’s annual profits. The rates for the 2024-25 tax year are as follows:

Companies with profits between £50,000 and £250,000 receive marginal relief, which gradually increases the tax rate from 19% to 25%. 

For Example, A company with a profit of £100,000 would calculate tax as, 

1. The first £50,000 is taxed at 19% is £9,500. 
2. Using the formula, Marginal Relief = (£250,000 - £100,000) × 3/200 = £2,250. 
3. The tax on the remaining £50,000 is £12,500 (25% of £50,000) minus marginal relief of £2,250 = £10,250. 
4. Total Corporation Tax = £9,500 + £10,250 = £19,750.

How to Calculate Corporation Tax?

To calculate the corporation tax liability, follow these steps:

1. Calculate taxable profits, and total revenue minus allowable expenses.
2. Determine the applicable tax rate, based on profit brackets.
3. Deduct allowable expenses, and reduce the taxable amount.
4. Apply marginal relief, If profits fall between £50,000 and £250,000.
5. Calculate final tax liability, and apply the corporation tax rate.

Allowable Expenses and Deductions

Companies can lower their taxable profits and reduce Corporation Tax UK by claiming business expenses. 

• Common allowable expenses include staff costs like salaries, pensions, and National Insurance. 
• Office expenses, such as rent, utilities, and internet, are also deductible. 
• Business travel costs, including transport, accommodation, and fuel, can be claimed. 
• Marketing and advertising expenses, such as website costs, paid ads, and promotional materials, reduce tax liability. 
• Equipment purchases like computers, machinery, and software are also deductible. 
• Claiming these expenses ensures businesses only pay limited company tax on actual profits, not total income.

Corporation Tax Filing & Payment Deadlines

Limited companies must file their Corporation Tax UK return and pay any tax owed on time to avoid penalties from HMRC. Understanding these deadlines is important for staying compliant and avoiding fines.

A company must submit a Company Tax Return (CT600) to HMRC within 12 months of the end of its accounting period. This return includes details of the company’s profits, expenses, and any tax reliefs claimed. Even if a company makes no profit or owes no tax, it must still file a return.

Penalties for Late Filing & Payment

Failing to file the return or pay tax on time can result in penalties:

• 1 day late, £100 fine
• 3 months late, Another £100 fine.
• 6 months late, HMRC estimates your tax bill and adds a penalty of 10%
• 12 months late, An additional 10% penalty.
• Interest charges apply from the due date until the tax is paid.
• Persistent non-payment may lead to enforcement actions, such as debt collection or legal proceedings.

To avoid penalties, companies should keep track of deadlines, prepare financial records in advance, and ensure timely submission and payment.

Tips to reduce your Corporation Tax bill

To reduce tax liability, businesses can implement tax planning strategies such as:

1. Maximising Allowable Expenses, ensure all eligible costs are deducted.
2. Making Pension Contributions, contributions to employee pensions reduce taxable profits.
3. By investing in R&D Tax Credits, businesses engaged in innovation can claim tax relief.
4. Claiming Capital Allowances, deduct costs of equipment, vehicles, and software.
5. Utilising Losses, carry forward or back losses to offset tax in profitable years.

What Happens if You Don't Pay Corporation Tax?

Failing to pay Corporation Tax on time can lead to serious consequences, including penalties, interest charges, and legal action from HMRC. Interest is applied from the day after the due date, increasing the total amount owed. 

In extreme cases, HMRC may issue a winding-up petition to close the company. If you’re unable to pay your Corporation Tax bill, contact HMRC immediately. They may allow a Time to Pay arrangement to spread the cost, but only if they believe you can keep up with the payments.

Corporation tax rates are an essential aspect of running a limited company in the UK. Understanding tax rates, allowable expenses, deadlines, and planning strategies help businesses minimise their tax liability while staying compliant. 

PHS Associates helps businesses navigate complex tax regulations, reduce liabilities, and maximise allowances. Contact us by phone at 0208 8611685 or by email at info@phs-uk.co.ukn if you need accountants. With our guidance, you can focus on the growth of your corporation tax obligations.