Corporation Tax in the UK – Updated 2024/25 Guide

Corporation Tax, also known as corporate tax, is complex and has undergone multiple reforms by various governments over the years. It is crucial to understand how corporation tax works and how it impacts you and your business.

To help with this, we have created an introductory guide to Corporation Tax, covering everything you need to know.

What is the UK Corporation Tax rate?

• Corporate Tax Rate: 25% 

Corporation Tax in the UK is a corporate tax levied on the annual profits of UK resident companies and branches of overseas companies. The current UK Corporation Tax rate is 25% for all limited companies.

Up until April 2023, the previous Corporation Tax main rate was 19%.

Who pays Corporation Tax?

All taxable UK limited companies must pay Corporation Tax on their annual profits, but Corporation Tax liabilities can also extend to unincorporated organisations like:

• co-operatives
• trade and housing associations
• members clubs or associations.

Corporate Tax thresholds

The 25% main rate is payable by companies with taxable profits above £250,000. A small profits rate (SPR) applies for companies with profits of £50,000 or below, meaning they will pay 19%.

Companies with taxable profits between £50,000 and £250,000 pay the main rate reduced by marginal relief, which provides a gradual increase in the average Corporation Tax rate. See below.

Marginal Relief for Corporation Tax

Companies may reduce their Corporation Tax bill through the Marginal Relief scheme if its profits are less than £250,000.

• Lower limit: £50,000
• Upper limit: £250,000

Marginal Relief results in a tax rate that gradually increases between the small business rate and the main Corporation Tax rate. This allows qualifying businesses to pay a lower tax rate than the standard 25% rate.

Who is responsible for paying Corporation Tax?

The company director, or directors, are responsible for filing Corporation Tax returns with HMRC and paying all taxes by the appropriate deadline. Many companies hire tax specialist accountants to prepare Corporation Tax returns, but the legal responsibility still lies with the company directors.

How is Corporation Tax paid?

Corporate Tax can be paid electronically, at a bank or at a post office.

The Corporation Tax bill can be paid by CHAPS, online or over the telephone if same-day payment is required.

BACS transfers, direct debits and credit or debit card payments usually take around three working days. For full instructions on how to pay your corporation tax, consult the UK Government website.

When is the Corporation Tax deadline?

The UK Corporate Tax return deadline is usually 12 months after the end of the accounting period the return covers.

Please remember that the deadline for paying a Corporation Tax bill is typically 9 months and one day after the accounting period ends. It's important to note that large companies may need to make Corporation Tax payments in instalments, with some of these payments due during the accounting year rather than after it.

Penalties for missing the Corporation Tax return filing deadline

The following penalties apply when Corporation Tax returns are filed late:

In addition, if your Corporation Tax return is late 3 times in a row, the £100 penalties are increased to £500. More information on Corporation Tax penalties can be found on the UK government website.

Penalties for late Corporation Tax payment

If you are unable to pay a company’s Corporation Tax bill on time, the company will be charged interest on the balance outstanding. If payments are not made, HMRC may pursue one of several courses of action to ensure the outstanding Corporation Tax is paid; these include:

• Contacting debt collection agencies
• Recovering the money directly from your bank or building society account
• Selling your assets
• Initiating court proceedings
• Liquidating the company and closing your business down

It is critical that outstanding Corporation Tax is paid on time, as the consequences of not paying can be severe—they may even put your business in jeopardy.

Assistance with paying a Corporate Tax bill

If you are unable to pay your outstanding Corporation Tax, HMRC may be able to help through setting up a payment plan. They must be contacted as soon as possible, not after deadlines have passed.

Note that large companies that are required to pay by instalments can incur a penalty if payments are not made on time.

What happens if you submit inaccurate information with your Corporation Tax return?

Submitting a Corporation Tax return with inaccurate information can cause all manner of issues, starting with an assortment of potential fines.

There are different ways in which HMRC perceive errors, and penalties will vary depending on the severity of the inaccuracy, whether the inaccuracy was deliberate, and whether you attempted to conceal it.

• Accidental errors in your Corporate Tax return, if disclosed to HMRC, will result in a fine between 0-30% of your total Corporation Tax bill. If you fail to disclose the error and HMRC discovers it, this fine will be a minimum of 15%.
• Deliberate, unconcealed inaccuracies in your Corporate Tax return, if disclosed to HMRC, will result in a fine between 20-70%. Undisclosed inaccuracies of this type will result in a fine of 35-70% if discovered by HMRC.
• Deliberately concealed inaccuracies are much more serious and will result in a fine between 30-100% of your total Corporation Tax bill if you disclose the inaccuracy to HMRC. If you attempt to hide this and HMRC discover it, your fine will be between 50-100%.
• Inaccuracies relating to offshore issues may incur even higher penalties.

It is critically important that your Corporation Tax returns are completed with attention to detail and a clear understanding of the information being submitted. Business tax accountants can help ensure your Corporation Tax returns are completed accurately and error free.

UK Corporation Tax rate history

The Corporation Tax rate in the UK has overall reduced since 2010. In 2010, Corporate Tax was set at 28%, with significant reductions taking place in the following few years. After 2014, the rate of reduction slowed down, and from 2017 to April 2023 the rate was 19%. Since April 2023 the Corporation Tax main rate is 25%.

Corporation tax main rate in the UK (2006-2024)

What is Ring Fence Corporation Tax?

Ring Fence Corporation Tax (RFCT) is like Corporate Tax, except it is only paid by companies involved in production of oil and gas in the UK, as well as the UK Continental Shelf (which includes parts of the North Sea, the North Atlantic Ocean, Irish Sea, and the English Channel).

The Ring Fence Corporation Tax main rate is 30% and there is also a small profits rate of 19%.

Do you have to pay Corporation Tax on dividends?

Dividends are payments a company makes to shareholders when it has made a profit. Companies do not need to pay Corporation Tax on dividends they receive; however, if an individual shareholder receives dividends greater than £1,000 before 6 April 2024, they will need to pay Income Tax on this. This tax-free amount reduces to £500 in April 2024.

Are dividends deductible from Corporation Tax?

Paying out dividends will not reduce your Corporation Tax bill. Corporation Tax is paid on a company’s profits before any dividends are paid out.

This means a dividend is not a tax-deductible expense and therefore does not lower the profits of a company, nor does it appear on the company’s income statement.

Do sole-traders pay Corporation Tax?

Sole traders do not pay Corporation Tax; instead, they are required to pay Income Tax on their business profits via self-assessment.

How do you pay less Corporation Tax in the UK?

There are many opportunities where companies can ensure they are paying only their fair share of Corporation Tax.

Through careful and detailed tax planning, you can minimise your Corporation Tax bills, while enjoying tax efficiency in several other areas, including:

• Tax relief on property and equipment through capital allowance claims
• Tax relief for innovative companies through R&D tax credits
• Patent box tax relief
• Much more…

Shorts Chartered Accountants has a team of experienced tax advisers, the biggest in the region. We offer strategic advice that can turn business tax planning into an opportunity, not an endurance test.

If you would like to discuss your options with one of our dedicated business tax experts, get in touch today, and the SHORTS team will be more than happy to help.