UK corporation tax is the tax companies pay on their profits in the UK. It covers trading income, investment income, and gains from selling business assets. The rate you'll pay depends on how much profit you make: 19% if your profits are under £50,000, 25% if they're over £250,000, and something in between if you fall in the marginal relief band. To calculate your rate, first determine your accounting profit, adjust it according to His Majesty's Revenue and Customs (HMRC) rules, and then apply whichever rate (or blend of rates) fits your circumstances.

Below, we'll explain how corporation tax rates work, how to calculate taxable profit, and how associated companies can change their thresholds.

Key takeaways

• The UK runs a tiered corporation tax system, with rates depending on your company's level of taxable profit.

• Payment and filing deadlines come after your accounting period ends, and you're expected to pay before you formally file your return.

• If your company has associated companies, rate thresholds are lower. This pushes each company's profits into higher tax bands sooner.

What is corporation tax in the UK?

Corporation tax in the UK is what limited companies, foreign companies with a UK branch, and some unincorporated associations pay on their profits. HMRC collects and administers this tax, which applies to trading profits, investment income, and gains from selling assets such as property and shares. If you run a limited company registered in the UK, you'll owe corporation tax, regardless of where your customers are.

What is the UK corporation tax rate?

Since April 2023, the UK has run a tiered corporation tax system. Before that, every company paid a single main rate of 19%, regardless of size.

Companies pay different rates depending on their taxable profits and other conditions:

• Small profits rate: You'll pay 19% if your taxable profits are £50,000 or less.

• Main rate: You'll pay 25% once taxable profits exceed £250,000.

• Marginal relief zone: Profits between £50,000 and £250,000 are taxed at an effective rate that rises steadily from 19% – 25%, calculated through marginal relief.

If your company has associates, these thresholds are divided by the number of associated companies involved. HMRC bases the bands on "augmented profits," which includes exempt distributions from companies outside your group in your taxable profits.

How is taxable profit calculated for UK corporation tax?

To calculate taxable profit for UK corporation tax, start with your accounting profit. Then, work through a set of specific adjustments to determine your taxable profit.

Here's how:

• Tally up your accounting profit: Accounting profit includes trading income, rental income, and interest received. It also includes chargeable gains from disposing of assets such as company vehicles and property, calculated after any reliefs.

• Deduct allowed expenses: Staff costs, rent, utilities, and goods bought for resale can be deducted, provided the costs were incurred solely for business purposes. You can't deduct client entertainment, fines, or penalties.

• Add depreciation back in: Since accounting depreciation isn't tax-deductible, you'll want to claim capital allowances instead.

• Make needed adjustments: General provisions for bad debts often have to be added back in if they don't meet HMRC's specific criteria for being tax-deductible.

Once you make the necessary adjustments, capital allowances will do most of the difficult work. Full expensing gives 100% first-year relief on qualifying new plant and machinery, and the annual investment allowance offers 100% relief on qualifying capital spending up to £1 million a year. Anything that doesn't qualify falls into either the main rate pool written down at 14% a year, the special rate pool written down at 6%, or a single asset pool where the rate depends on the item.

When is corporation tax due and how do you file it?

New companies must register for corporation tax with HMRC within three months of starting to trade. Trading includes buying, selling, advertising, and hiring an employee. If your company has profits up to £1.5 million, your UK corporation tax must be paid within nine months and one day of when your accounting period ends. So if your accounting period runs until 31 March, you'll need to pay by 1 January the following year. Above the £1.5 million threshold, companies must pay in quarterly instalments instead. Late payment incurs interest that accrues daily.

Your Company Tax Return (CT600) must be filed within 12 months of the end of your accounting period. If your accounting period runs until 31 March, your filing deadline is 31 March the following year. This means you'll need to pay your taxes first and file your return a few months later. Late filing incurs automatic penalties that start at £200 and increase over time.

To file your CT600, you'll have to submit it online, along with your full statutory accounts in iXBRL format. You'll also need to include tax computations that show how you got from your accounting profit to your taxable profit. Most companies use accounting software or an accountant for this purpose.

How does marginal relief reduce your corporation tax bill?

Marginal relief tapers what would otherwise be a steep jump between the 19% small profits rate and the 25% main rate. It applies to companies with taxable profits between £50,000 and £250,000. If you fall into this bracket, you'll first calculate your tax at the 25% main rate. Then, you'll subtract your relief amount, which can be determined with this formula:

(Upper Limit - Augmented Profits) × (Taxable Profits ÷ Augmented Profits) × 3 ÷ 200 = Marginal Relief

For example, a company with £100,000 in taxable profits would pay £25,000 in tax. This is its marginal relief:

(£250,000 - £100,000) × (£100,000 ÷ £100,000) × 3 ÷ 200 = £2,250

So the company pays £22,750 instead, which is an effective rate of 22.75%.

HMRC provides a marginal relief calculator on its website. Most accounting software will also tally it for you.

How do associated companies affect your corporation tax?

If your company is "associated" with one or more other companies, your tax bracket thresholds are split between them. This pushes more of your profit into higher tax bands sooner. Two companies are considered associated if one controls the other (or if the same person or group of people controls both) at any point during the accounting period. Control usually means ownership of more than 50% of the shares or voting rights. When ownership alone doesn't settle the question, HMRC also weighs factors such as financial dependency between companies.

Here's how corporation tax works for associated companies:

• One associated company: Your thresholds are divided by two, so they drop to £25,000 and £125,000 from £50,000 and £250,000.

• Two associated companies: Your thresholds are divided by three, and the pattern continues as the count increases.

• Founders who run multiple entities: The decrease in thresholds is most pronounced for people with separate trading companies, a holding company structure, and businesses owned by family members who hold significant stakes elsewhere.

The calculation can differ slightly for dormant companies and companies associated for only part of the year. Have an accountant confirm your associated company count rather than assume it from ownership structure.

How can you simplify corporation tax compliance and recordkeeping?

Use tax and invoicing software to simplify corporation tax compliance and recordkeeping. While it won't calculate or file your corporation tax, this software keeps up-to-date with your financial activity, which makes things much easier when it's time to file.

Companies that juggle revenue across different products, subscription tiers, or currencies need solutions like Stripe Invoicing to keep a structured record of what's been billed and what's been paid. This matters when you're substantiating income figures for your CT600 computations. Automated invoice numbering and payment tracking also reduces the chance of double-counting or missing revenue when you pull together annual figures.

Tax tools like Stripe Tax handle the calculation and collection of UK value-added tax (VAT), which is different from corporation tax but often draws on the same underlying transaction data. Keeping VAT records accurate throughout the year makes tax adjustments much easier when it's time to calculate, pay, and file.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.

FAQs about corporation tax in the UK