How Much Corporation Tax Do I Pay? A Complete Guide for UK Businesses

If you run a limited company in the UK, you may have wondered how much Corporation Tax do I pay. Yes, you heard that correctly. Whether you are preparing your annual accounts or setting money aside for your tax bill, understanding how Corporation Tax is calculated can help you make informed financial decisions.

In simple terms, the amount of Corporation Tax your company pays is not determined by a single flat rate. However, the applicable rate depends on factors like your company’s taxable profits, whether the Small Profits Rate, Marginal Relief, or the Main Rate applies. In addition, the £50,000 and £250,000 thresholds may need to be adjusted if your company has associated companies or an accounting period shorter than 12 months. Consequently, two companies with similar turnover could have different Corporation Tax liabilities.

If you want a clear understanding of how much Corporation Tax do i pay when running a limited company, this guide is especially for you. This guide explains the following: the current Corporation Tax rates, how taxable profits are worked out, and how to calculate your company’s tax liability. So Let’s get into it.

What Is Corporation Tax in the UK?

Before looking into how much Corporation Tax do I pay in the UK, you first need to know what it is.  It is a tax that is charged on the taxable profits generated by limited companies, UK branches of foreign companies, and certain clubs or associations during an accounting period. These taxable profits include trading profits, investment income, and chargeable gains. Corporation Tax is generally calculated on taxable profits, not turnover. A company can have £500,000 of turnover but a much lower taxable profit after allowable expenses and other tax adjustments.

Remember that you must pay Corporation Tax if you run a limited company, or certain other organisations that fall within the Corporation Tax rules and make taxable profits. On the other hand, sole traders and individual partners generally pay Income Tax through Self Assessment.

Example of Corporation Tax

Let’s solve your query of how much corporation tax do I pay with an example:

For a simplified example, suppose a limited company has turnover of £100,000 and £60,000 of allowable expenses. Ignoring other tax adjustments, its taxable profit would be £40,000 (£100,000 − £60,000).

If the company qualifies for the 19% Small Profits Rate, its Corporation Tax liability would be £7,600 (£40,000 × 19%).

How Much Corporation Tax Do I Pay?

To answer your question, “How much Corporation Tax do I pay”? You need to calculate your company’s taxable profit, as the amount of Corporation Tax payable depends on the applicable rate or relief for the accounting period. That is why understanding Corporation Tax is important. Because the amount your company pays depends on both its taxable profits and the Corporation Tax rules during its accounting period.

How Much Is Corporation Tax?

The following are the current Corporation Tax rates:

• If your company made over £250,000 profit, you pay the main rate of Corporation Tax, which is 25%.
• If your company made a profit under £50,000, you pay the small profits rate, which is 19%.
• If your company’s profits are between £50,000 and £250,000, you may be eligible for Marginal Relief, which gradually increases the effective rate between 19% and 25%.

How Much Is Corporation Tax for a Limited Company?

When exploring how much Corporation Tax do I pay in the UK, it is important to note that there is no universally applicable rate. As mentioned previously, the amount of Corporation Tax that your company is required to pay depends on taxable profits after allowable business expenses and any relevant tax adjustments.

On the other hand, your company may qualify for Marginal Relief, pay the Main Rate, or pay the Small Profits Rate, depending on its specific circumstances. Consequently, two limited companies with similar turnover may have differing Corporation Tax liabilities because their taxable profits and available tax reliefs may vary.

How Do You Work Out Corporation Tax?

When discussing how much Corporation Tax do I pay, you also need to know how Corporation Tax works out. The following steps help you better understand how to calculate your Corporation Tax.

Calculate Your Business Income

First, calculate your company’s income and accounting profit for the accounting period. This may include trading income, as well as other forms of taxable income, such as investments and chargeable gains.

Deduct Allowable Expenses

Next, deduct allowable business expenses that are eligible for Corporation Tax relief. These include rent, utility bills, and employee salaries.

Make Tax Adjustments

Taxable profit is not always equivalent to accounting profit. You may need to make tax adjustments, such as adding back disallowable expenses, replacing depreciation with capital allowances when applicable, and including any chargeable gains. These adjustments are used to determine your company’s taxable profits for Corporation Tax purposes.

Apply the Correct Corporation Tax Rate

Lastly, apply the appropriate Corporation Tax rate after calculating your taxable profits. This may be the Main Rate, the Small Profits Rate, or the effective rate after Marginal Relief, where applicable, depending on your company’s circumstances.

When Do You Pay Corporation Tax?

Understanding how much Corporation Tax do I pay is only part of meeting your company’s tax obligations. However, you also need to pay it on time. Most companies must pay Corporation Tax within nine months and one day of the end of their accounting period. Companies with very large taxable profits may have different payment arrangements and may need to pay Corporation Tax by quarterly instalments.

Meanwhile, your Company Tax Return (CT600) must be submitted within 12 months after the end of the accounting period. If you pay your Corporation Tax late, it may result in interest charges, while penalties apply if you file your Company Tax Return after the deadline.

How Can You Reduce Your Corporation Tax Bill?

Yes, you can legally reduce your Corporation Tax bill by claiming all available tax reliefs and allowances that your company is entitled to. This may include allowable business expenses, capital allowances on qualifying assets, qualifying employer pension contributions, and, when applicable, government tax reliefs such as R&D tax relief.

Bottom Line

Understanding how much Corporation Tax do I pay in the UK starts with accurately calculating your company’s taxable profits and applying the appropriate Corporation Tax rules. The current rates provide a helpful starting point. However, your final tax liability can also be affected by factors such as Marginal Relief, associated companies, and the reliefs and allowances that your business is entitled to claim.

By regularly reviewing your tax position and maintaining precise financial records, you can pay the appropriate amount of Corporation Tax while remaining compliant with HMRC requirements.

Need Help With How Much Corporation Tax You Pay?

If you are still unsure how much Corporation Tax do I pay, or whether your company is paying the correct amount, you are not alone; many companies experience this. But the good news is we are here to help you. At Influencers accountants, we help businesses maintain HMRC compliance by calculating Corporation Tax liabilities, identifying available reliefs and allowances, and preparing and filing Company Tax Returns. Furthermore, we help prepare and file your Company Tax Return (CT600) and provide ongoing tax planning.

Contact us today to learn how our accountants can provide your company with proactive tax advice and accurate Corporation Tax calculations.

Disclaimer:
The information in “How Much Corporation Tax Do I Pay? A Complete Guide for UK Businesses” is for general guidance only and does not constitute professional tax or legal advice. Always consult a qualified accountant for your specific situation.