A tax on the profits of UK limited companies. The current main rate is 25% for profits over £250,000, with a smaller rate of 19% for profits under £50,000. Unlike VAT and Self Assessment, Corporation Tax returns are not yet part of HMRC's Making Tax Digital system.
Corporation Tax is the tax bill of any UK limited company. It's the number your board sees annually, the amount you need to budget for at year-end, and the figure your accountant uses to plan tax efficiency throughout the year.
For company directors and finance teams, Corporation Tax is the bill after all other decisions are made. You can't avoid it by shifting income - it applies to profit, which is calculated on accrual accounting principles, not cash. A profitable company pays tax on that profit, regardless of whether you've taken the money out as a director's salary or dividend.
For accountants, Corporation Tax filing is still a manual process requiring careful calculation and submission of a CT600 return to HMRC. Unlike VAT and Self Assessment, which are now part of Making Tax Digital, Corporation Tax does not have an automated filing route yet - so every company still needs accountant support for this process.
The tax rate matters strategically. At 25% on profits over £250,000, Corporation Tax is a significant cost. Many growing companies plan their structure (salary vs. dividend) and timing (when to pay invoices) with Corporation Tax in mind.
Corporation Tax applies to the total profit of a limited company, calculated on an accrual basis over the company's financial year.
The calculation:
Start with taxable profit:
Real example:
A UK limited company has:
Since profit is under £250,000 (but above £50,000), the rate is 25% on the portion above £50,000 and 19% on the first £50,000. The calculation is roughly 19% x £50,000 + 25% x £130,000 = £9,500 + £32,500 = £42,000 in Corporation Tax. (Actual calculations are more complex due to marginal relief - your accountant will handle this.)
Timing:
You file a Company Tax Return (CT600) with HMRC once per year, showing your profit and calculating your tax. Payment is due 9 months after your year-end. For large companies with profits over £19 million, quarterly payment instalments are required.
Corporation Tax is not yet part of Making Tax Digital:
VAT and Self Assessment returns are now filed automatically via HMRC's MTD system. Corporation Tax is still filed manually via the traditional CT600 return. This means you cannot fully automate your UK tax filing as a limited company - you will need your accountant to submit the CT600. When MTD is extended to Corporation Tax (expected in future years), this will change.
Distinguishing profit from cash:
A company might have profitable accounts but negative cash flow. You invoice a customer in December but they don't pay until February - that revenue counts towards your December profit but the cash doesn't arrive until February. This matters for timing of dividend payments and cash planning.
Allowable vs. non-allowable expenses:
Not every cost the company pays is deductible. Salary, rent, supplies, professional fees, interest on loans - these are allowable and reduce your taxable profit. Personal expenses, fines, some entertaining costs - these are not. Your accountant will advise on borderline items.
Dividend tax is separate:
Corporation Tax is the company tax. If you then pay a dividend to shareholders (including yourself as director), that dividend gets taxed again in the shareholder's hands. This is called the "double tax" effect and is a common reason companies choose salary vs. dividend strategies.
Loss carry-forward:
If your company makes a loss in one year, you can carry that loss forward to offset profit in future years, reducing Corporation Tax. Keep records of losses for at least 6 years.
Aarvo calculates your estimated Corporation Tax liability in real time. Connect your bank feeds and invoice data, and Aarvo shows your profit and loss statement. From that, we calculate an estimated Corporation Tax bill - so you always know what you might owe at year-end.
However, Aarvo does not currently file Corporation Tax returns to HMRC. Corporation Tax is not yet part of HMRC's Making Tax Digital system, so the filing process remains manual. You will still need your accountant to file your CT600 return and manage payment to HMRC.
We monitor HMRC's roadmap and will add automated Corporation Tax filing as soon as it becomes available through MTD. Until then, use Aarvo to track your profit position and estimate your tax liability, and work with your accountant for the official filing.
Sign up free at aarvo.com/signup and track your Corporation Tax liability in real time from your connected bank and invoice data.
Corporation Tax is a tax on the profit of UK limited companies. If your company makes £100,000 in profit, you pay 25% (or 19% if profit is under £50,000), which is £25,000 (or £19,000) in tax. You pay it once per year on your company's profit, not on individual directors' salaries.
Limited companies and certain other business structures pay Corporation Tax. If you're a sole trader or partnership, you pay Income Tax and National Insurance instead (via Self Assessment). If you've incorporated as a company (Ltd, PLC, or similar), Corporation Tax applies to your profit.
Start with your profit for the year (revenue minus all allowable expenses). Apply the relevant rate - 25% if profit is over £250,000, 19% if under £50,000, or a marginal rate in between. You also get relief for dividends you've paid out. Your accountant will calculate the exact amount, as there are additional reliefs and adjustments depending on your circumstances.
Corporation Tax is due 9 months after your year-end. So if your year-end is 31 December, payment is due 30 September the following year. If you expect a large bill, you may need to pay in quarterly instalments. HMRC will issue a statement showing what you owe.
Aarvo shows your estimated Corporation Tax liability based on your profit and loss - so you can see what you might owe. However, Aarvo does not currently file Corporation Tax returns to HMRC, because Corporation Tax is not yet part of HMRC's Making Tax Digital system. You will still need your accountant to file your CT600 return and pay the bill.
HMRC is developing Making Tax Digital for Corporation Tax, but it is not yet live. When it does launch, automated filing will become available. Monitor gov.uk for updates. For now, all companies must file a traditional CT600 return, usually through an accountant.
The system HMRC uses to collect Income Tax from individuals who aren't taxed at source, including sole traders, freelancers, landlords, and company directors. Returns are filed annually or via Making Tax Digital.
Value Added Tax - a consumption tax charged on most goods and services in the UK at a standard rate of 20%. Businesses with turnover above £90,000 must register for VAT, file quarterly returns, and remit tax collected to HMRC.
Net profit is the money remaining after subtracting all expenses, taxes, and costs from total revenue. Also called the 'bottom line,' it's the definitive measure of whether your business is actually making money.