Corporation Tax Rates and Marginal Relief for UK Companies

Unlike sole traders or partnerships, which follow different tax rules, limited companies must complete this specific return. The filing process involves calculating your profit or loss for Corporation Tax purposes, which may differ from the figures in your company’s annual accounts. This guide explains how Corporation Tax is calculated, the prevailing rates and how Marginal Relief can affect your tax bill.

What is a Company Tax Return?

A Company Tax Return (form CT600) is the document your limited company or association must file with HMRC to report its taxable profits or losses for Corporation Tax. HMRC typically sends a "notice to deliver a tax return" shortly after your company’s accounting period ends (usually at year-end), prompting you to submit the CT600.

What is Corporation Tax?

Corporation tax is a tax levied on the profits of UK companies. These profits can arise from various sources, such as trading activities, investments (except franked investments), or by selling assets.

The tax treatment can vary depending on your company’s international presence:

• UK companies with overseas branches: Must pay UK Corporation Tax on the profits of all their branches, regardless of location. They may also be subject to local taxes in the countries where the branches operate.

• UK companies with overseas subsidiaries: Generally only pay UK Corporation Tax on profits generated from their UK activities. Profits from overseas subsidiaries are usually taxed in the country where the subsidiary is located.

• Overseas companies with a UK branch or subsidiary: Are liable for UK Corporation Tax only on the profits generated by their UK-based branch or subsidiary.

Who Has to Pay Corporation Tax?

Corporation Tax applies to limited companies. The key trigger for payment is profitability. If your company’s total taxable income exceeds its allowable deductions, resulting in a profit, Corporation Tax will be due. However, if your company breaks even or incurs a loss, no Corporation Tax is payable for that financial year.

It’s important to remember that companies making a loss can utilise these losses through carry-forward (offsetting future taxable profits) or carry-back (reclaiming Corporation Tax paid in previous periods). However, the fundamental requirement to pay Corporation Tax online is having taxable profits that aren’t fully offset by available losses.

When is the corporate tax filing deadline?

To avoid penalties, ensure timely filing:

• Filing Deadline: Your company must file its tax return within 12 months of the end of its accounting period. Missing this deadline incurs penalties for late filing.

• Payment Deadline: You’ll need to pay the Corporation Tax bill 9 months and one day after the end of your accounting period. Late payments also result in penalties and interest charges.

You can check out this article for key corporation tax dates in the UK if you’re a business owner here.

Step-by-Step Guide: Completing Your Company Tax Return

Filing your CT600 online with HMRC is mandatory for most companies. Here’s a breakdown of the process:

Register With HMRC for Online Filing:

You must register with HMRC to access their online filing portal, obtaining a unique user ID and password.

Tip: If you’re unsure of the process, it’s advisable to ask your accountant to handle this registration on your company’s behalf, as they are familiar with the process.

Prepare Your Company Accounts and Tax Calculations:

Accurately prepare your company’s statutory accounts for the relevant accounting period. Calculate your Corporation Tax liability based on your taxable profits, incorporating all eligible deductions and reliefs (e.g., capital allowances can reduce your taxable profit).

File Your Accounts With Companies House:

In addition to submitting your Company Tax Return to HMRC, you must file your company’s statutory accounts with Companies House. Online filing with Companies House is efficient and secure, requiring a separate authentication code. Postal filing is also an option.

Choose Your Filing Method With HMRC:

File your CT600 and supporting documents directly through the HMRC online portal using your user ID and password. There is also an option to file jointly via the HMRC website, which can potentially streamline the process if you are using compatible accounting software.

Submit Your Return and Consider Professional Help:

Once your accounts and calculations are ready, choose your preferred filing method with HMRC (direct upload or joint filing if applicable) and submit your CT600 and supporting documents.

Tip: Always submit your return before the filing deadline to avoid penalties. If you’re unsure about any part of the process, it might be beneficial to consult an accountant. They can ensure accuracy, compliance and even identify potential tax-saving opportunities.

What Information Do You Need to Provide?

To file your Company Tax Return, you’ll need to provide the following:

• Statutory accounts (often in iXBRL format for online filing).
• Corporation tax computation.
• Company tax return (CT600 form).

Corporation Tax Rates

Your company’s Corporation Tax liability is calculated based on its taxable profit during the accounting period. The standard rates that apply are as follows:

• Small Profit Rate: 19% for taxable profit up to £50,000.
• Main Rate: 25% for taxable profits above £250,000.

Important Considerations for Thresholds:

1. The £50,000 (small profits rate) and £250,000 (main rate) profit thresholds are proportionately reduced if your company’s accounting period is shorter than 12 months.

2. These thresholds are also reduced based on the total number of ‘associated companies’ your company has. Companies are associated if one controls the other or both are under the control of the same person or group of people. Example: If your company has 3 associated companies, the lower threshold becomes £50,000/4 = £12,500, and the upper threshold becomes £250,000/4 = £62,500.

3. It’s important to note that different Corporation Tax rates apply to the ‘ring fence’ profits of companies involved in oil rights or extraction in the UK or UK continental shelf.

4. Remember that various deductions, allowances and tax credits can significantly reduce your company’s Corporation Tax bill. These are collectively known as allowances and reliefs. Examples include capital allowances (for equipment), research and development (R&D) relief, and many others. Exploring these potential reductions is crucial for minimising your tax liability.

Marginal Relief: A Gradual Rate for Mid-Sized Profits

For companies with taxable profits between £50,000 and £250,000, a mechanism called ‘Marginal Relief’ provides a gradual increase in the effective Corporation Tax rate from the small profits rate (19%) up to the main rate (25%). This prevents a sharp tax increase when profits slightly exceed the small profits threshold.

How Marginal Relief Works:

Instead of immediately facing the 25% main rate, companies in this profit range benefit from an effective tax rate that incrementally rises from 19% towards 25% as their profits increase.

Who can claim Marginal Relief (for profits from 1 April 2023)?

Your company may be eligible if:

• Your taxable profits are between £50,000 and £250,000 (for the relevant accounting period).

• The profit thresholds are adjusted based on factors such as a shorter accounting period (proportionally reduced) and the number of associated companies (divided accordingly), as explained in the “Corporation Tax Rates” section.

Who Cannot Claim Marginal Relief?

Your company is not eligible for Marginal Relief if:

• You’re a non-UK resident company.
• You’re a close investment-holding company (a company whose business consists wholly or mainly of making investments).
• Your taxable profits (including distributions from unrelated, unassociated companies) go over £250,000.

Check How Much Relief You Can Claim

You can use the Marginal Relief Calculator on the HMRC website to determine if your company qualifies and how much Marginal Relief you can claim. This tool is specifically for businesses claiming relief on profits from 1 April 2023 onward.

Conclusion

Navigating Corporation Tax can be complex, but understanding the rates and how Marginal Relief works is crucial for any UK company. Missing deadlines or incorrectly filing your tax return can lead to penalties, so it’s important to get it right the first time.

If you’re unsure about how to file your Company Tax Return or how to claim the correct relief, you can consider Taxd. We can help ensure your return is filed accurately and that you pay the lowest possible tax.

FAQs

1. What is a company tax return in the UK?

A Company Tax Return is the financial information that most companies file with HMRC each year to report on their earnings, losses, loans and any other factors relevant to their tax liability. Companies use this information to calculate the Corporation Tax that they owe.

2. How much tax do UK companies pay?

The main rate of corporation tax for company profits is currently 25% for the year 2025-26. If your company makes a profit of more than £250,000, you'll pay the main rate of tax. If your company made a profit of less than £50,000, you pay the 'small profits' rate, which is 19%.

3. How is a UK company taxed?

A UK resident company is taxed on its worldwide total profits. Total profits are the aggregate of: (i) the company's net income from each source and

(ii) the company's net chargeable gains arising from the sale of capital assets.