Corporation Tax for New Directors: A Plain-English UK Guide

The moment your limited company makes a profit, you owe Corporation Tax on it. There is no threshold below which it disappears, no personal allowance to absorb the first chunk, and no reminder from HMRC telling you it is due. The obligation exists the day your company starts trading, and the responsibility for meeting it; on time and correctly, sits with you as director.

This guide covers everything a new director needs to understand: how Corporation Tax is calculated, the current rates, what qualifies as an allowable expense, your filing deadlines, and the legitimate ways to reduce what your company pays.

What Corporation Tax Is and What It Applies To

Corporation Tax is the tax your limited company pays on its taxable profits. It is not a tax on turnover, and it is not a tax on what you personally draw from the company. It is calculated on the company's profit after allowable expenses have been deducted but before any dividends are paid out to shareholders.

It applies to three types of income that a UK limited company can generate:

• Trading profits — income from the goods or services your company sells, less the allowable costs of generating them.
• Investment income — interest received, rental income from company-owned property, and similar passive income.
• Chargeable gains — profit from selling company assets such as property, shares, or equipment at a price above their original cost.

Unlike income tax, which uses a personal allowance to shelter the first £12,570 of earnings, Corporation Tax starts from £0 of profit. A company making £1,000 of profit owes Corporation Tax on that £1,000.

Corporation Tax Rates 2025/26 and 2026/27

The UK currently operates a two-rate system with a marginal relief band in between. These rates were introduced in April 2023 and confirmed unchanged through to at least the end of the current parliament.

* The effective rate within the marginal relief band can reach 26.5% at certain profit levels due to how the relief formula tapers. See the Marginal Relief section below.

The Small Profits Rate: 19%

If your company's taxable profits for the accounting period are £50,000 or less, you pay Corporation Tax at 19%. This is the rate that applies to the vast majority of new and growing limited companies.

The Main Rate: 25%

Taxable profits above £250,000 are subject to the 25% main rate. For a company making £300,000 profit, the full bill at 25% would be £75,000.

Marginal Relief: 19%-25% on £50,001-£250,000

Rather than a sharp jump from 19% to 25% at the £50,001 mark, HMRC uses a marginal relief calculation to taper the rate gradually across this band. The formula reduces the headline 25% charge by an amount based on how far your profits sit below £250,000.

Accounting Periods and Your First Year

Corporation Tax is assessed by reference to your company's accounting period; typically 12 months, ending on whatever date you chose when you registered with Companies House.

The First Accounting Period Quirk

When a company is incorporated, HMRC automatically opens a Corporation Tax record and assigns a first accounting period. If your company was incorporated partway through a month, your first accounting period will run from the date of incorporation to the end of the following month which may be slightly less or more than 12 months.

Where an accounting period exceeds 12 months; common in the first year, it must be split into two for Corporation Tax purposes: one period of exactly 12 months, and one covering the remainder. This means two CT600 returns for one trading year. The thresholds (£50,000 and £250,000) are also reduced proportionally for any accounting period shorter than 12 months.

Filing and Payment Deadlines

There are three separate deadlines new directors frequently confuse. They run from the end of your accounting period, not the end of the tax year.

Payment and filing are separate. You must pay Corporation Tax before you file the return that calculates it. Most companies pay first based on their own calculation, then file the CT600 to confirm the figure. HMRC will charge interest from the payment deadline if payment is late, regardless of when the return is submitted.

What Counts as an Allowable Expense

Allowable expenses reduce your company's taxable profit and therefore reduce the Corporation Tax bill. The governing principle is that the expense must be incurred wholly and exclusively for the purposes of the business. Personal expenses, even partial ones, must be separated out.

What Is Not Allowable

• Dividends paid to shareholders — these come from post-tax profit, not pre-tax profit.
• Personal expenses — clothing, personal travel, meals that are not client entertainment.
• Fines and penalties — HMRC fines, parking tickets, late filing penalties.
• Client entertainment — taking clients to dinner or events is specifically disallowed for Corporation Tax purposes, even if clearly business-related.

Capital Allowances

Ordinary expenses are deducted in full in the year they are incurred. Capital expenditure; buying assets that will last beyond the year, such as computers, machinery, or vehicles, is treated differently. Instead of deducting the full purchase cost in year one, capital allowances spread the relief across multiple years.

Annual Investment Allowance (AIA)

The Annual Investment Allowance lets companies deduct 100% of qualifying capital expenditure in the year of purchase, up to an annual limit of £1 million. For most new limited companies, the AIA covers all capital spending with full relief in year one. Assets that qualify include computers, equipment, machinery, and most fixtures.

Full Expensing

Introduced in April 2023 and made permanent in the Autumn Statement 2023, full expensing allows companies to claim 100% first-year relief on qualifying new plant and machinery — without the £1 million cap that applies to the AIA. Second-hand assets do not qualify for full expensing.

Cars

Cars are treated separately from other equipment. The rate of capital allowance depends on the vehicle's CO₂ emissions. Zero-emission cars qualify for a 100% first-year allowance. Cars with higher emissions receive 18% or 6% writing-down allowances annually.

Legitimate Ways to Reduce Your Corporation Tax Bill

Corporation Tax planning is not avoidance; it is the legal and expected use of reliefs the government has created specifically to encourage business investment. These are the most relevant for a new limited company director.

1. Maximise your director salary. Salary is a deductible expense. Up to the employer NI threshold, you can pay yourself without triggering employer NI and reduce the company's taxable profit directly.
2. Make employer pension contributions. Pension contributions made by the company on behalf of directors and employees are fully deductible, reducing taxable profit while building your retirement pot.
3. Bring forward capital expenditure. If you plan to buy equipment, bringing the purchase forward into the current accounting period generates relief now rather than next year; particularly valuable if your profits are approaching a higher rate band.
4. Claim R&D tax credits if eligible. Companies working on genuine innovation — new products, processes, or software; may qualify for R&D relief, which can significantly reduce Corporation Tax or generate a cash credit. The bar is lower than many directors assume.
5. Use losses strategically. Trading losses can be carried forward to offset future profits, carried back to claim relief against the previous year's tax, or in some circumstances surrendered to other group companies.
6. Review the timing of income and expenditure. With your accountant's guidance, the timing of invoices raised and costs incurred can shift profit between accounting periods which matters when you are close to a rate threshold.

How to File: The CT600

The CT600 is the Corporation Tax return form. It must be filed online via HMRC's Corporation Tax service, along with the company's statutory accounts and a tax computation supporting the figures. Paper filing is not accepted for the vast majority of companies.

What the CT600 Covers

• Company income and expenses for the accounting period
• Any capital allowances claimed
• Adjustments for non-deductible expenses and disallowable items
• Any reliefs claimed — R&D, losses, group relief
• The final Corporation Tax calculation and amount payable

Most directors file the CT600 through their accountant's practice software, which connects directly to HMRC. If you file yourself, HMRC offers a free online filing service; though for anything beyond a very simple return, professional preparation reduces the risk of errors that can attract enquiries or penalties.

Registering for Corporation Tax

You must notify HMRC that your company exists and has started trading within three months of commencing business activity. Registration is done online through HMRC's Business Tax Account. You will need your company's UTR (Unique Taxpayer Reference), which is issued automatically by HMRC when the company is incorporated and sent to the registered office address.

Do not confuse this with Companies House registration. Incorporating a company via Companies House and registering it for Corporation Tax with HMRC are separate steps. One does not trigger the other automatically.

Frequently Asked Questions

Does my company pay Corporation Tax if it makes a loss?

No, Corporation Tax is only charged on taxable profits. If your company makes a loss in an accounting period, there is no tax to pay. The loss can generally be carried forward to reduce tax in a future profitable year, or in some cases carried back to reclaim tax paid in the prior year. Losses do not expire under current rules.

Is there a personal allowance for Corporation Tax like there is for income tax?

No. Corporation Tax applies from the first pound of profit. There is no nil-rate band or personal allowance equivalent. The small profits rate of 19% applies from £0 to £50,000 but that is a lower rate, not a tax-free amount.

What is the difference between Corporation Tax and income tax on dividends?

Corporation Tax is what the company pays on its profits before distributing anything to shareholders. Income tax on dividends is what you personally pay when you receive a dividend from the company. They are two separate taxes on two separate entities, the company and the individual. The combined effect is why salary-plus-dividend structuring matters: total tax depends on both layers.

My company made a profit of £60,000. Does the entire amount get taxed at 25%?

No — this is a common misconception. With £60,000 of profit, you fall into the marginal relief band. You pay 25% initially, then receive a reduction via the marginal relief formula. The effective rate on £60,000 is approximately 19.4%, only slightly above the small profits rate. The 25% main rate applies in full only to profits above £250,000.

Can I pay myself more salary to reduce the company's Corporation Tax bill?

Yes — salary is a deductible expense and reduces the company's taxable profit. However, salary attracts employee and employer National Insurance above certain thresholds, so the tax saving at company level has to be weighed against the NI cost. The optimal salary level — often set around the NI secondary threshold, requires calculating both together, which is something your accountant should model for your specific situation.

How far back can HMRC investigate my Corporation Tax returns?

HMRC can typically open an enquiry into a CT600 up to 12 months after the filing deadline, provided there is no fraud or negligence. Where HMRC suspects careless errors, the window extends to four years. For deliberate errors or fraud, HMRC can go back 20 years. Maintaining accurate, well-documented records is your best protection.

I have two limited companies. Does that change my Corporation Tax rates?

Yes — associated companies divide the rate thresholds. With two active associated companies, each company's small profits threshold reduces from £50,000 to £25,000, and the upper limit reduces from £250,000 to £125,000. If one of your companies is genuinely dormant with no income or expenditure, it typically does not count as associated — but this should be confirmed with your accountant.

Do I need an accountant to file Corporation Tax, or can I do it myself?

You can file the CT600 yourself if your company has straightforward accounts. HMRC provides an online filing service. However, most directors with growing businesses use an accountant because the tax computation; accounting for allowances, disallowable expenses, marginal relief, and reliefs, is complex enough that errors are common. The cost of professional preparation is itself a deductible expense, and most directors find it saves more than it costs.

Just set up your limited company?

Accounted works with new directors to set up their accounting correctly from day one; salary structure, expense tracking, year-end planning, and Corporation Tax filing handled for you. The earlier you get the foundations right, the less you'll pay.