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When running a limited company there are many things to try and understand and how corporation tax works is one of the most important. The rules can be complex and as accountants we’re often asked to break it down in plain English.
What Is corporation tax?
Corporation tax is a tax on the profits made by limited companies and other types of organisations such as associations. It’s similar to income tax for individuals but applies to company profits.
Who pays corporation tax?
If you run a limited company registered in the UK, your business could be subject to corporation tax in three areas;
How much is corporation tax?
There are three areas to consider;
These thresholds are reduced if your company has associated companies — see below.
Deadlines
Missing these deadlines can result in penalties and interest — avoidable with good planning.
Complexities
Associated companies – Companies under the same control (e.g., owned by the same person or group) can impact the thresholds for tax rates
R&D tax relief – Innovative companies may qualify for Research & Development (R&D) tax credits but the rules are intricate and HMRC is tightening scrutiny
Capital allowances – Instead of deducting depreciation, companies can claim capital allowances on certain investments — but choosing between annual investment allowance, writing down allowances and full expensing can be tricky
Director’s loans- Money taken out of the company by directors may trigger extra tax if not repaid within a certain timeframe
Loss relief – Loss-making companies can carry forward or back their losses to reduce taxable profits but there are specific rules about when and how to claim.
Quarterly corporation tax – For companies with profits over £1.5m. When calculating profits, associated companies must be taken into account.
As a business owner it can be hard to navigate corporation tax as you need to understand the rules, plan ahead and making sure your company is as tax-efficient as possible — all while staying compliant with HMRC.
As accountants we have trained for many years to help optimise the allowances and reliefs and explaining how rule changes affect our clients.
You don’t have to figure it out alone. If you’re unsure about any of the rules or want to make sure you’re not paying more than necessary, we’re here to help.
01323 649 509
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As the 2024/25 tax year draws to a close, now is the perfect time to review your finances and ensure you make the most of available tax allowances and reliefs before the new tax year begins on 6th April 2025.
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