How much Corporation Tax do companies pay?

Corporation Tax is a tax paid by limited companies on their taxable profits.

The company is responsible for calculating how much Corporation Tax it owes, submitting a Company Tax Return to HMRC and paying any tax due by the relevant deadline. Many companies use accounting software or work with an accountant to help meet these obligations.

Taxable profits may include:

• trading profits;
• profits from investments; and
• chargeable gains from the disposal of certain assets.

The rate at which Corporation Tax is paid depends on the company’s taxable profits and the Corporation Tax rules that apply for the accounting period.

As Corporation Tax rates and thresholds can change, you should always check the latest information before calculating your tax liability.

For the current Corporation Tax rates and thresholds, see HMRC’s guidance on Corporation Tax rate

The profit shown in your company’s accounts is not always the same as the profit on which Corporation Tax is paid.

To calculate the taxable profits, you’ll normally start with the accounting profit and then make adjustments required by tax legislation. These adjustments may include:

• adding back expenses that aren’t allowable for Corporation Tax;
• deducting any tax reliefs or capital allowances that are available;
• taking account of any trading losses that can be claimed; and
• including other taxable income or chargeable gains where appropriate.

The resulting figure is the company’s taxable profit, on which Corporation Tax is calculated.

The table below provides a simplified example of how this process works.

When calculating Corporation Tax, not every expense included in your company’s accounts can be deducted for tax purposes.

To be deductible, an expense must generally be incurred wholly and exclusively for the purposes of the business. If an expense has been deducted in the accounts but isn’t allowable for Corporation Tax, it must be added back when calculating the company’s taxable profits.

Some common examples are shown below.

If your company is liable to pay Corporation Tax, it has two separate responsibilities:

1. Submit a Company Tax Return to HMRC, showing how the company’s taxable profits and Corporation Tax liability have been calculated.
2. Pay any Corporation Tax due by the relevant payment deadline.

These are separate deadlines, so it’s important to plan ahead and ensure both are met. Many companies use accounting software or work with an accountant to prepare their Corporation Tax calculation and submit their return.

To avoid interest and penalties, make sure you budget for your Corporation Tax throughout the accounting period rather than waiting until the payment is due.