What is Corporation Tax and when do I pay it?

Note: Corporation Tax rates and profit thresholds change regularly. The figures here are general orientation only — confirm the current rate and your exact deadlines with HMRC.

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What Corporation Tax actually is

Corporation Tax is the tax your limited company pays on its profit.

That's the whole idea. If you run a company, the company is a separate legal "person" in the eyes of the law. It earns money, it has costs, and on what's left over — the profit — it owes tax to HMRC. That tax is Corporation Tax.

Notice the important word: profit, not sales. Your company isn't taxed on every pound that lands in the bank. It's taxed on what's left after the genuine costs of running the business come out. Bring in £80,000, spend £30,000 on real business costs, and Corporation Tax is charged on the £50,000 — not the £80,000.

Sole traders and ordinary partnerships don't pay Corporation Tax at all — they pay income tax through Self Assessment instead. Corporation Tax is specifically a company thing.

What counts as "profit"

Profit, for Corporation Tax, is roughly your income minus your allowable costs.

Income is what the business earned — sales, fees, interest, and a few other bits.

Allowable costs are the genuine expenses of earning that income: wages, rent, software, stock, accountancy fees, and so on. The rule HMRC applies is that a cost must be "wholly and exclusively" for the business to count. (See: What can I claim as a business expense?)

Subtract the costs from the income and you've got your taxable profit. There are a few adjustments an accountant makes along the way — some costs aren't deductible, and there are reliefs for things like equipment purchases — but the headline idea holds: income in, real costs out, tax on what's left.

This is why keeping clean records pays off directly. Every legitimate cost you record reduces the profit, which reduces the tax. Costs you forget to record are tax you needn't have paid.

How much is it? (roughly)

The UK Corporation Tax rate broadly sits in the 19–25% range. Smaller companies with lower profits pay at the bottom end; larger profits are charged at the higher rate, with a sliding scale in between for profits in the middle.

We're being deliberately vague here, because this is precisely the figure that changes — the rate, and the profit thresholds where it steps up, both move. Confirm the current numbers with HMRC before you rely on them.

The mental model that's safe to carry: roughly a fifth to a quarter of your company's profit is owed in Corporation Tax. Set that proportion aside as you earn, and the bill is never a shock.

When do I pay it? (the bit everyone gets wrong)

Here's the part that catches founders out, because it's the opposite of personal tax.

You pay Corporation Tax 9 months and 1 day after your company's year-end.

Your year-end (your "accounting period") is set when you incorporate — often the last day of the month you registered in. Count nine months and one day forward from that date, and that's your payment deadline.

So if your company year ends 31 March, your Corporation Tax is due by 1 January the following year. Year ends 31 December? Payment's due 1 October.

The twist is that you pay before you file. With Self Assessment, you file and pay on the same day. With Corporation Tax, the payment comes first — at nine months and a day — and the actual return is due later.

A common trap: founders assume the deadline is tied to the tax year (5 April) like personal tax. It isn't. It's tied to your company's year-end, which is yours alone. Two founders can have completely different Corporation Tax deadlines.

Filing the CT600 (the return itself)

The Corporation Tax return is called the CT600. It's the form that tells HMRC how you arrived at your profit and the tax due on it.

You must file the CT600 within 12 months of your year-end. So you've got three extra months after the payment deadline to get the return in. Pay at nine months and a day; file by twelve.

Alongside the CT600, HMRC wants your company accounts (the formal version of your year's numbers, including a balance sheet) and a tax computation showing the maths. Most small companies have an accountant prepare and file these — but the numbers come straight from your bookkeeping. If your records are tidy, this is a quick, calm job. If they're a mess, it's a painful one.

To summarise the rhythm of a company year:

• Year-end — your accounting period closes.
• 9 months + 1 day later — Corporation Tax payment due.
• 12 months later — CT600 and accounts filed.
• Separately, annual accounts also go to Companies House within 9 months of year-end (a different deadline to the CT600). (See: The UK small business tax calendar.)

What happens if you're late

HMRC charges automatic penalties for a late CT600, escalating the longer it's overdue, and interest on Corporation Tax paid late. None of it is enormous for a first slip, but it's entirely avoidable — and it leaves a mark on your record that lenders and investors can see.

The honest fix isn't heroic last-minute effort. It's keeping your bookkeeping current through the year so that, when the deadline comes, the profit figure is already sitting there, ready. The dread around Corporation Tax is almost never the tax itself — it's the fear that the records behind it don't add up.

Why understanding it matters

It's tempting to file Corporation Tax under "my accountant's problem." But the founders who understand it make better decisions all year.

When you know roughly a fifth to a quarter of profit is owed, you set it aside monthly and the deadline becomes a simple transfer. When you understand it's charged on profit, you record every legitimate cost — which is money back in your pocket. And when an investor or lender looks at your business, an up-to-date company with no overdue Corporation Tax quietly signals a founder who's in control.

You don't need to fill in a CT600 by hand. You just need to know what it's taxing, when it's due, and that the records behind it are clean.

The short version

Corporation Tax is the tax your limited company pays on its profit — income minus allowable costs — at a rate broadly in the 19–25% range. You pay it 9 months and 1 day after your year-end, and file the CT600 within 12 months. Payment comes before filing. Set aside a rough fifth to a quarter of profit as you go, keep your records tidy, confirm the current rate with HMRC, and it's a manageable, predictable part of running a company.

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Want to know your rough bill across all taxes? How much tax will I actually pay? →

Never miss the date: The UK small business tax calendar →

Frequently asked questions

When is Corporation Tax due?

Nine months and one day after your company's accounting year-end. If your year ends 31 March, payment is due by 1 January. The CT600 return itself is due within 12 months of year-end — so you pay before you file.

What is Corporation Tax charged on?

Your company's profit — income minus allowable business costs — not your total sales. Recording every legitimate cost lowers the profit and therefore the tax.

What is a CT600?

It's the Company Tax Return — the form that shows HMRC how you worked out your profit and the Corporation Tax due. It's filed with your company accounts and a tax computation, usually by your accountant, within 12 months of year-end.

Do sole traders pay Corporation Tax?

No. Corporation Tax is only for limited companies. Sole traders and ordinary partnerships pay income tax on their profit through Self Assessment instead.

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