Understanding Corporation Tax for Business Owners

Welcome to the next article in our Accounting & Tax 101 series — short, plain-English guides to help you understand the numbers that matter.

If you run a limited company, you’ll need to pay Corporation Tax on your profits. But what is it, how is it worked out, and when is it due? Let’s strip away the jargon.

1. What is Corporation Tax?

It’s the tax your company pays on its profits. Think of it as the company’s version of income tax.

• Profit = Sales – Costs (after adjustments for things HMRC allows or disallows).

• The tax is paid by the company, not you personally.

2. How much is it?

Since April 2023, Corporation Tax isn’t one flat rate anymore. It depends on how much profit your company makes:

• Up to £50,000 profit → 19%

• Over £250,000 profit → 25%

• Between £50,000 and £250,000 → a sliding “marginal rate” (effectively about 26.5% in that band).

This is why tax planning matters in the £50k–£250k zone — it’s the new “hotspot” for saving tax.

3. What counts as profit?

Profit is based on your company accounts, but adjusted for tax rules. For example:

• You can deduct business expenses (rent, salaries, stock, etc.).

• Some costs aren’t allowed (client entertaining, fines, personal spending).

• You can often claim capital allowances for equipment, vehicles, or other assets.

The adjusted figure is your taxable profit.

4. When do you pay it?

• The bill is due 9 months and 1 day after the end of your company’s year.

• Example: if your year-end is 31 March, Corporation Tax is due by 1 January the following year.

• Larger companies (profits over £1.5m) have to pay in instalments, but most small businesses just make one payment.

5. How do you file it?

• You need to submit a Corporation Tax return (CT600) to HMRC, showing how the tax was calculated.

• This must be filed online, using iXBRL-tagged accounts.

Why it matters

Corporation Tax is often the single biggest tax bill your company faces each year. Get it wrong, and HMRC can charge interest and penalties.

Our advice

Don’t wait until the last minute. Knowing your likely Corporation Tax early means you can plan — whether that’s setting aside cash, paying directors, or investing in the business.

Here at Accounts Action, we calculate your Corporation Tax as part of your year-end accounts, and give you clear guidance on how much to pay, when, and how

This article is part of our Accounting & Tax 101 series — short guides to help you understand your accounts without the jargon.