4 min read

How much Corporation Tax do companies pay?

If you run your business through a limited company, you’ll usually need to pay Corporation Tax on the company’s taxable profits. Understanding how Corporation Tax works will help you budget for your tax bill and ensure you meet your reporting and payment obligations.

This guide explains how Corporation Tax is calculated, when it’s due and where to find the current tax rates.

What is Corporation Tax and at what rate is it paid?

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

How do I work out my company’s taxable profits?

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.

StepExample (£)
Accounting profit before Corporation Tax117,143
Add non-allowable business expenses38,345
Less allowable deductions (including capital allowances)(68,699)
Adjusted trading profit86,789
Less trading losses brought forward(6,000)
Add other taxable income6,286
Taxable profits87,075

Note: Dividends received by most UK companies are generally exempt from Corporation Tax and are therefore not normally included in the taxable profits calculation.

When can capital allowances be claimed?

When a company buys assets to keep and use in the business, it may be able to claim capital allowances. Capital allowances are a form of tax relief that can reduce the company’s taxable profits.

The type and amount of relief available depends on the asset purchased and the capital allowances available at the time.

The capital allowances rules can be complex, particularly for buildings, cars and high-value assets. If you’re unsure whether an item qualifies, consider seeking advice from a qualified accountant.

Buildings

You cannot normally claim capital allowances on the cost of land or the building itself. However, relief may be available for certain fixtures and integral features, such as lifts, electrical systems, heating systems and air-conditioning. In some cases, other reliefs may also be available for qualifying expenditure on commercial buildings.

 

If your company is carrying out significant building work, it’s worth seeking professional advice to ensure all available reliefs are claimed.

Computer equipment

Computers, laptops, servers and other IT equipment used in the business will usually qualify for capital allowances. This also includes many items of office equipment and software purchased for business use.

Cars and other commercial vehicles

Cars used by the business may qualify for capital allowances, although the amount of relief available depends on factors such as the vehicle’s carbon dioxide emissions.

 

Commercial vehicles, such as vans and lorries, generally qualify for capital allowances under different rules from cars.

Machinery, equipment, fixtures and fittings etc

Machinery, tools, equipment, fixtures and fittings that are kept and used in the business will usually qualify for capital allowances. Examples include:

 

  • manufacturing equipment
  • office furniture
  • shelving and storage equipment
  • security systems, such as CCTV
  • fire alarms
  • certain fitted kitchens and bathroom facilities used in business premises.
Buildings

You cannot normally claim capital allowances on the cost of land or the building itself. However, relief may be available for certain fixtures and integral features, such as lifts, electrical systems, heating systems and air-conditioning. In some cases, other reliefs may also be available for qualifying expenditure on commercial buildings.

 

If your company is carrying out significant building work, it’s worth seeking professional advice to ensure all available reliefs are claimed.

Computer equipment

Computers, laptops, servers and other IT equipment used in the business will usually qualify for capital allowances. This also includes many items of office equipment and software purchased for business use.

Cars and other commercial vehicles

Cars used by the business may qualify for capital allowances, although the amount of relief available depends on factors such as the vehicle’s carbon dioxide emissions.

 

Commercial vehicles, such as vans and lorries, generally qualify for capital allowances under different rules from cars.

Machinery, equipment, fixtures and fittings etc

Machinery, tools, equipment, fixtures and fittings that are kept and used in the business will usually qualify for capital allowances. Examples include:

 

  • manufacturing equipment
  • office furniture
  • shelving and storage equipment
  • security systems, such as CCTV
  • fire alarms
  • certain fitted kitchens and bathroom facilities used in business premises.

Corporation Tax calculator

To see this piece of interactive content, please visit our main site below.

Display Full Site

Which business expenses aren’t allowable?

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.

ExpenseExplanation
Capital expenditure and depreciationThe cost of buying or improving long-term business assets, such as buildings, machinery and equipment, isn’t deducted as a business expense for Corporation Tax. Instead, tax relief may be available through capital allowances. Depreciation charged in the accounts is also not deductible for Corporation Tax purposes.
Client entertainingThe cost of entertaining customers and other business contacts is not normally allowable for Corporation Tax. However, staff entertaining may be deductible where it is incurred for business purposes.
Political and charitable donationsPolitical donations are not allowable. Qualifying charitable donations are generally not deducted as a business expense but may qualify for Corporation Tax relief under separate rules.
Penalties and finesFines and penalties for breaking the law are not allowable because they do not arise from carrying on the business.
Some legal feesLegal fees relating to the purchase of capital assets or to breaking the law are not allowable as trading expenses. However, legal fees relating to the day-to-day running of the business, such as debt recovery or routine commercial matters, are usually allowable.

How do I report and pay Corporation Tax?

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.