01

Introduction to Corporation Tax

Corporation Tax (CT) is a tax on the profits of limited companies and certain other organisations, including foreign companies with a UK branch or permanent establishment, clubs, co-operatives, and associations. All companies that make a profit must pay Corporation Tax on trading profits, investments, and capital gains.

Understanding Corporation Tax is vital for business owners to remain compliant, avoid penalties, and plan effectively for their company’s financial future. Late registration or inaccurate filings can result in fines and interest charges from HMRC.

Corporation Tax is a crucial responsibility for all limited companies operating in the UK. At CAPS, we take the complexity out of tax compliance, offering expert guidance and tailored support to ensure your company meets its legal obligations while maximising tax efficiency.

02

Corporation Tax Rates and Thresholds

• Main Rate (from April 2023): 25% for companies with profits over £250,000.
• Small Profits Rate: 19% for companies with profits up to £50,000.
• Marginal Relief: Applies to companies with profits between £50,000 and £250,000, offering a gradual increase in the effective tax rate between 19% and 25%.

Historical Context

Prior to April 2023, the Corporation Tax rate was 19% for all companies. The introduction of the two-tier system aims to ensure smaller companies benefit from a lower rate.

Industry-Specific Rates

Some industries, such as oil and gas, banking, and insurance, may be subject to additional levies or bespoke tax treatments. Speak to us if your business operates in these sectors.

03

Registering for Corporation Tax

You must register for Corporation Tax within 3 months of starting to trade (i.e., carrying on a business activity like buying, selling, advertising, or employing staff).

To register, you'll need:

• Your company’s Unique Taxpayer Reference (UTR)
• Company registration number
• Business start date
• Accounting period end date
• Registered office address
• Type of business activities
• Director details

Registration is done through HMRC’s online portal

04

Calculating Corporation Taxable Profits

Income Sources

• Trading profits
• Investment income
• Chargeable gains from selling assets (e.g., property, shares)

Allowable Expenses

Costs wholly and exclusively for business purposes can be deducted:

• Salaries and wages
• Rent, utilities, and office supplies
• Insurance and legal fees
• Accountancy fees

Disallowable expenses include:

• Trading profits
• Investment income
• Chargeable gains from selling assets (e.g., property, shares)

05

Capital Allowances

These are tax deductions for certain capital assets:

• Plant and machinery
• Business vehicles

Instead of claiming depreciation, businesses claim capital allowances to reduce taxable profits. Relevant schemes include:

• Annual Investment Allowance (AIA): 100% deduction up to a threshold.
• Full Expensing/Super Deduction: Where available, for qualifying assets (check current HMRC rules).

Other Reliefs and Deductions

• R&D Tax Relief: Available for innovative companies under SME and RDEC schemes.
• Patent Box: Reduced 10% CT rate on profits from patented inventions.
• Creative industry reliefs: For qualifying film, TV, and gaming companies.
• Loss reliefs: Including trading losses, terminal loss relief, capital loss relief.

06

Company Tax Returns (CT600)

The CT600 is the form used to submit your Corporation Tax return to HMRC.
It must include:

• Financial accounts
• Tax computations
• Supplementary pages if required

Deadlines: Must be filed within 12 months of your company’s accounting period end. Financial data must be filed in iXBRL format (digitally tagged).

Failure to file accurately or on time can result in significant penalties and HMRC scrutiny.

07

Paying Corporation Tax

• Standard payment deadline: 9 months and 1 day after the end of your accounting period.
• Large companies: Must pay in quarterly instalments.

Payment methods

• Online or telephone banking (Faster Payments, BACS, CHAPS)
• Direct Debit

Late payments: Attract interest and financial penalties.

08

Tax Planning and Minimising Corporation Tax

An accountant plays a crucial role in identifying legal ways to reduce your tax bill.

Key strategies include:

• Claiming all allowable expenses
• Making full use of capital allowances
• Leveraging R&D tax credits and Patent Box
• Structuring director salaries and dividends efficiently

Accurate record-keeping is essential to support claims and defend against HMRC enquiries.

09

Key Terms and Glossary

• UTR: Unique Taxpayer Reference issued by HMRC
• Accounting Period: The period for which CT is calculated
• Chargeable Gains: Profits from selling assets
• Allowable/Disallowable Expenses: Items that reduce or don’t reduce tax
• Capital Allowances: Tax relief on capital assets
• Marginal Relief: Reduces tax for mid-tier profit companies
• iXBRL: Standard format for filing accounts
• HMRC: HM Revenue & Customs, UK’s tax authority