Corporation Tax Rates, Reliefs & Returns

Corporation Tax Rates

IN THIS ARTICLE

Corporation tax is payable on profits generated by UK limited companies, overseas companies with UK-based operations and unincorporated associations, clubs and cooperatives.

Corporation tax applies to the profits generated by a company from the sale of goods and services, through investments and on the sale of business assets (‘chargeable gains’).

Non-UK companies active in the UK are liable to corporation tax the profits they make from trading activity in the UK.

In this guide, we summarise the current corporation tax rates, how to calculate corporation tax liability and ways to reduce your corporation tax bill through reliefs and allowances.

What is the UK corporation tax rate?

The main UK corporation tax rate in 2023/2024 is 25% for companies reporting an annual profit of £250,000 or more.

If your profits were £50,000 or less, the small profits rate of 19% will apply.

Marginal relief is available to companies reporting profits of between £50,000 and £250,000, as we discuss below.

How much corporation tax do you have to pay?

Companies are required to calculate their corporation tax liability on an annual basis, and report and pay the company’s tax liability before the relevant deadline. Importantly – HMRC do not work out corporation tax liability for you, nor do they issue corporation tax bills.

Limited companies have to determine their liability by preparing company accounts and filing CT600 corporation tax form, along with any other relevant tax forms.

Can you reduce corporation tax?

Companies looking at ways to reduce their tax liability should assess if they are making full use of corporation tax allowances and reliefs, such as:

Marginal relief

Companies with profits below £250,000 can apply for marginal relief to reduce their corporation tax bill on profits earned after 1 April 2023.

Marginal relief works by increasing the applicable corporation tax rate based on the level of profit reported between the small profits rate (19%) and the main rate (25%). The rates are as follows:

For associated companies, the combined amount of profit across all the relevant companies will be used to determine if marginal relief is available.

Marginal relief is not available to non-UK resident companies, close investment holding companies or where your profits are more than £250,000.

To calculate tax payable with marginal relief, you multiply company profits by the main rate of 25% and then deduct the applicable marginal relief. Put simply:

  • The first £50,000 profit is taxed at the small profits rate of 19%
  • The next £200,000 profit is taxed at the marginal rate of 26.5%
  • Profits over £250,000 are taxed at the main rate of 25%

Companies can use HMRC’s online calculator to calculate how much marginal relief they are entitled to claim. You will need to have the following information to use the online tool:

  • Company accounting period start and end dates
  • Total taxable profit
  • Amount of any distributions from non-group, un-associated companies
  • Associated company details

R&D tax relief

The research and development tax relief scheme is a government incentive to encourage businesses to invest in innovative projects that will

Don’t be put off by the name – research and development in this context is extremely broad and can the scheme is open to businesses in all sectors, not just science and tech or those traditionally associated with R&D.

The scheme varies depending on the size of your business, for most SMEs, you will be able to deduct the full cost of qualifying R&D projects from your trading income, as well as claiming an additional 130% against taxable profits as corporation tax relief.

Patent Box scheme

This is an intellectual property scheme for companies with a qualifying patent that they either own or have an exclusive licence to sell.

Under Patent Box, income from the qualifying patent will be subject to a reduced corporation tax rate of 10% is applied. INcome from the patent could include sales and compensation resulting from any IP infringement awards.

Loss-making companies

Corporation tax relief allows loss-making companies to set their loss against other income, against past profits or against future profits.

Group companies are permitted to offset losses against the profits of other companies within the group under the group relief loss.

Capital allowances

Under the capital allowances scheme, businesses can claim for expenditure on purchases of qualifying plant, machinery and business vehicles.

Where annual capital expenditure on such items is below the Annual Investment Allowance (AIA) threshold, companies can usually claim back the full investment amount under the capital allowances scheme.

The AIA is set at £1 million until the end of 2020, when it is due to change back down to £200,000.

Where capital expenditure is over the AIA, may be , companies may be able to claim back a percentage of the spend as a writing down allowance.

The writing down allowance rate is currently 18% for spend on most types of plant and machinery each year, or 6% where special rates apply.

Allowable business expenses

When calculating your profits, ensure you are deducting all allowable business expenses.

Under the rules, ordinary expenses can be set against business profits provided the spend is necessary and exclusively for business purposes. This includes expenses relating to business travel, subsistence and salary.

Key exceptions, however, apply, such as dividends and entertainment. Taking professional advice can ensure you are making full and correct use of the business expense rules.

Note that the purchase of assets such as equipment would not come under business expenses, but instead should be dealt with under the capital allowances scheme.

Mileage allowance

Under the mileage allowance scheme, Approved mileage allowance payments (AMAP) allow for business mileage to be claimed as an expense. Set rates apply and applied as follows:

First 10,000 miles Over 10,000 miles
Car / van £0.45 £0.25
Motorcycle £0.24  £0.24
Bicycle £0.20 £0.20

Corporation tax on chargeable gains

If a company sells or disposes of a business asset at a profit, this profit will be subject to corporation tax.

Business assets are those owned by the company, which could include shares, property and land as well as items such as equipment and machinery.

Gains on intangible assets such as IP and business reputation acquired or created by the company after 31 March 2002 should be included in the company’s trading profits and are also subject to corporation tax.

To calculate the tax liability, you will need to determine the value of the gain resulting from the disposal, less any reliefs or allowances, and then apply the current corporation tax rate.

Chargeable gains are to be reported to HMRC with your annual company tax return.

The equivalent tax on asset disposal for the self-employed is capital gains tax.

How to pay corporation tax

Corporation tax must be paid by the relevant deadline, which is usually within 9 months and 1 day of the company’s normal due day – typically the anniversary of when the company was formed.

The company’s annual tax return (CT600) must be submitted 12 months after the relevant accounting reference date.

Companies that file the return or pay corporation tax late can be fined.

Corporation tax FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert professional advice should be sought.

 

Author

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.

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