A guide to paying Corporation Tax

Corporation tax rates changed from 1st April 2023 for the first time since 1st April 2015. It is important for all company owners and directors to understand and how these changes will affect your business and allow you to budget for tax payments. HMRC charges interest for unpaid and late payment of corporation tax, and may penalise errors on returns and late filing.

Our comprehensive guide to corporation tax explains everything you need to know about including how it is calculated and how you pay your tax liability.  

What is corporation tax? 

Corporation tax is the tax businesses pay to HMRC on their income and gains from selling assets. The tax is mandatory for all UK resident companies, which must pay tax on their worldwide income and gains.

Non-UK resident companies must pay UK corporation tax on profits and chargeable gains of a UK permanent establishment.

All non-UK resident companies must pay UK corporation tax on UK property income and chargeable gains from disposals of UK land or buildings.

Companies must pay corporation tax every year based on their tax accounting period, some companies will pay regular instalments.

All businesses must pay the correct amount of tax. Directors are responsible for keeping company records, filing accounts and tax returns, and paying the tax.

If directors do not meet the requirements, authorities may fine, prosecute, or disqualify them from being a company director. 

What is the corporation tax rate in the UK? 

From 1st April 2023, UK companies (excluding investment properties) will pay tax at a rate depending on its profits. Before this change, the corporation tax rate was 19% for periods from 1st April 2015 to 31st March 2023. 

Profit banding	Corporation Tax rate
Profits under £50,000	19% small profits rate
Profits over £250,000	25% tax rate
Profits in between £50,000 and £250,000	25% less claim for marginal relief, which leads to an effective rate of 26.5%

You would lower the profit limits for companies with accounting periods under 12 months and for the number of 'associated companies'. 

The concept of associated companies can become quite complicated, so seek professional advice if you have any doubts. One company links to another company when one entity controls the other or when both have the same controlling entity.

Exclusions apply for companies that do not carry on a trade, and for passive holding companies. In cases where businesses are under common control, it is important to ensure that they pay the correct rate of tax.

A company with three associated companies will have a lower limit of £12,500 and the upper limit of £62,500. 

If your company makes a loss for the year, no corporation tax is payable. 

Businesses pay corporation tax on taxable profits. Taxable profits are trading profits and money made from investments and selling assets. Trading profits are trading income less trading expenses and are before the payment of dividends.  

What is Marginal Relief?   

Companies whose taxable profits are between £50,000 and £250,000 may be eligible for Marginal Relief. You cannot claim marginal relief if you are a non-UK resident company or are a close investment holding company. 

Marginal Relief provides a gradual increase in the tax rate on profits between £50,000 and £250,000. For example, if your profits are £125,000 from 1st April 2023 to 31st March 2024, businesses will pay:  

Corporation tax at 25%	£31,250
Less marginal relief (3/200)	-£1,875	(Upper limit £250,000 less profits £125,000) x 3/200)
Corporation tax payable	£29,375	(£23.5%)

Each additional £1 of profit between £50,000 and £250,000 is taxed at an effective marginal rate of 26.5%, as shown below:

Profits	Tax rate	Tax due
£250,000	25%	£62,500
-£50,000	19%	-£9,500
£200,000	26.5%	£53,000

How to pay corporation tax  

You can pay corporation tax to HMRC in the following ways: 

Payment method	Payment speed
Approve payment through online bank account	Same day
Online/telephone banking by faster payments or CHAPS	Same day
Online by debit or credit card  *Fee charged for corporate credit card	Same day
Direct debit (already set up)	3 working days
Online or telephone banking by BACs	3 working days
At your bank or building society	3 working days
Direct debit (not already set up)	5 working days

If your payment is due on a weekend or bank holiday, you should pay it early. This will ensure that the payment clears before the last working day before your deadline.  

Who must pay corporation tax? 

These businesses may have to pay corporation tax:

• Incorporated companies (limited companies and public limited companies) 
• Co-operatives to groups of individuals carrying out a business   
• Members’ clubs, societies, and associations   
• Housing associations 
• Trade associations    

 Sole traders and partnerships must pay income tax and capital gains tax by filing self-assessment tax returns. 

Registering to pay corporation tax   

When a company registers with Companies House, it usually registers for corporation tax and PAYE at the same time. HMRC may charge a penalty if you register more than three months after it starts trading.

When do I pay corporation tax?  

A company pays corporation tax nine months and one day after its accounting period ends. This applies if the company earns taxable profits up to £1.5 million.  

If a company’s accounting year ends on 31st March, the deadline for paying corporation tax is 1st January.  

A company will pay corporation tax in instalments if it has taxable profits of more than £1.5 million. 

What happens if I submit my corporation tax payments late?  

If you pay your corporation tax late, HMRC will charge the company interest until it receives payment. HMRC set late payment interest at 2.5% above the base rate.

Late tax returns or inaccurate information

If you file your corporation tax return late, HMRC will apply penalties. You have 12 months to submit your corporation tax return after the accounting period.

It is important to know deadlines and allow enough time to make sure the information submitted is correct. 

Time after your deadline	Penalty
1 day	£100
3 months	Another £100
6 months	HMRC will estimate your corporation tax bill and add a penalty of 10% the unpaid tax
12 months	Another 10% of any unpaid tax

If you file your corporation tax return late for the third time, the penalties are higher.

You must pay penalties within 30 days of notice, after which HMRC will charge interest on the penalty.

If you file your corporation tax return more than 6 months late, HMRC will send you a letter. The letter will state the amount of corporation tax to pay, a 'tax determination'. You cannot dispute it, you must either pay the tax determined or file a tax return and pay the calculated amount.

HMRC expects directors to take reasonable care over the company’s tax affairs. If you have made an error on your tax return, you must correct it immediately. If you took reasonable care but still made a mistake, HMRC will not charge a penalty.

Notifying HMRC unprompted of an error will result in a lower penalty.

Always contact HMRC as soon as possible to explain the error. Penalties will depend on whether the error was deemed: 

• careless but not deliberate. 
• deliberate but not concealed. 
• deliberate and the business has tried to conceal it  

Type of error	Penalty range for unprompted disclosure	Penalty range for prompted disclosure
Careless	0% to 30%	15% to 30%
Deliberate but not concealed	20% to 70%	35% to 70%
Deliberate and concealed	30% to 100%	50% to 100%

HMRC can take unpaid tax from your tax refunds or adjust your PAYE code to collect it from your income. In some circumstances, HMRC could even visit you at your home or business premises or send a debt collection agency.  

What if I cannot afford to pay my corporation tax?   

If you cannot pay your corporation tax on time, contact HMRC immediately. It will help you find ways to quickly raise money to pay off the debt. This might involve extending credit terms, selling assets, and borrowing money. 

Can I pay HMRC in instalments?  

HMRC may allow you to set up a Time to Pay arrangement so you can pay the liability in instalments. HMRC will arrange this based on the circumstances of the company's finances.

The company will pay corporation tax in instalments if it has taxable profits of more than £1.5 million.

Payment	Payment due date
First payment	6 months and 13 days after the first day of the accounting period
Second Payment	3 months after the first instalment
Third payment (due after the end of the accounting period)	3 months after the second instalment (14 days after the last day of the accounting period)
Final payment	3 months and 14 days after the last day of the accounting period

What if my business has not profited in the last year?  

If the business is not profitable, there will be no corporation tax to pay. You must complete a form to inform HMRC that you are not required to make any payments. However, you still need to submit a tax return for your company. 

If you make a trading loss, you can claim loss relief. This can help reduce the amount of corporation tax you have to pay in the future or in previous years. Ask your accountant for more information.

Can I lower my corporation tax? 

 When doing your accounts and tax return, make sure to include all the expenses and deductions the company can claim. By claiming all allowable expenditure, you will lower the taxable trading profits and therefore reduce your corporation tax liability. 

If you would like advice on allowable expenses and deductions, contact your accountant. 

Corporation tax allowances 

Claiming allowable business expenses can lower a company's taxable profits and mitigate the tax a company has to pay. Some examples of these are: 

• rent of premises  
• business insurance 
• gas and electricity and other ‘overhead’ costs 
• telephone and internet costs 
• salary costs 
• purchase of materials 
• bank charges 
• advertising costs 
• travel costs 

The treatment of the purchase of business assets (equipment, furniture, and vehicles) differs. You cannot deduct the costs from profits for tax purposes. However, you can claim capital allowances to reduce taxable trading profits and the corporation tax you owe. 

Corporation tax reliefs 

Companies can claim various reliefs, these include: 

• Research and Development (R&D) 
• The Patent Box

Other taxes your business may need to pay 

There are other taxes that the business may need to pay. 

• National Insurance Contributions (NICs) 
• Pay As You Earn (PAYE) 
• Value Added Tax (VAT) 
• Capital Gains Tax (CGT)  
• Cryptocurrency Tax    

Arrange a free initial consultation  

At TaxAssist Accountants we can help your business calculate your corporation tax. Please call 01482 563312 or use the online contact form.

Date published 21 Sep 2023 | Last updated 27 Aug 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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