When you set up and run a limited company using our online bookkeeping service, it’s important to understand how Corporation Tax works. Your company’s Corporation Tax calculation is based on the annual profit it has generated, hence why it is advisable to set aside enough funds before your tax bill’s annual deadline date. Late or inaccurate payment could translate into fines and penalties from HMRC.

What are the Corporation Tax rates for 2025/26?

For the 2025/26 tax year in the UK, Corporation Tax rates are as follows:

• Small Profits Rate: 19% for companies with taxable profits of £50,000 or less.
• Main Rate: 25% for companies with taxable profits above £250,000.
• Marginal Relief: Companies with taxable profits between £50,001 and £250,000 pay the main rate of 25%, reduced by a marginal relief, resulting in an effective tax rate that gradually increases from 19% to 25%. The effective marginal rate for profits in this range can be up to 26.5%.

These rates remain unchanged from the 2024/25 tax year, as confirmed in the Autumn Budget 2024.

These thresholds are divided proportionally for companies with associated companies or shorter accounting periods. Close Investment Holding Companies pay the main rate of 25% regardless of profit levels. Non-resident companies without a UK permanent establishment are not eligible for the small profits rate or marginal relief and pay the main rate of 25%.

Associated Companies: If you control multiple companies (e.g., owning more than 50% of shares or voting rights, directly or indirectly), they are considered "associated." The £50,000 small profits threshold and £250,000 upper limit are divided equally among all associated companies.

For example:

• If you have two companies, each gets a £25,000 small profits threshold and a £125,000 upper limit.
• With three companies, it’s £16,667 and £83,333 per company, respectively.

How can business expenses reduce your tax liability?

You can reduce your corporation tax bill if you claim every allowable expense you are entitled to. Do not forget to include your salary, mileage, premises rent and equipment.  

It’s important to note that salaries can be included in the Corporation Tax calculation, but not dividend payments. These payments are made after Corporation Tax has been deducted and are subject to a separate Dividend Tax.

Tax liability when making a loss

If your company makes a loss, this can be rolled forward and offset against profits in future accounting periods. Your accountant will be able to review your finances and advise you about your current options. In some cases you may be able to carry the loss back, to reduce profits in an earlier period. This is limited to one year, except when the company has ceased trading and Terminal loss relief can be utilised over a three year period.

Company Year-End and Corporation Tax deadline

The end of each 12-month accounting period is known as your company’s ‘year-end’. Your annual Corporation Tax calculation will apply to each year-end and can only cover up to a 12-month period. The Corporation Tax Return is due to be submitted to HMRC within one year of the year end, BUT the accounts must be submitted within nine months and the Corporation Tax paid within nine months and a day.

For example, let’s say your company year end is 31st March 2025.

• The deadline for submitting the accounts to Companies House will be 31st December 2025
• The deadline for paying the Corporation Tax will be 1st January 2026. Interest will be charged after this point.
• The deadline for submitting the Corporation Tax Return will be 31st March 2026.  

First Accounting Year

As you can only submit up to a 12-month period in any one Corporation Tax Return, it is likely that for the first accounting period, two Corporation Tax Returns will be required. For example, if the company is incorporated and starts trading on the 12th March 2025, the first company year end will be 31st March 2026, and two Corporation Tax returns will be required for the periods:

• 12th March 2025 to 11th March 2026 due for payment by 12th December 2025.
• 12th March 2026 to 31st March 2026 due for payment by the 1st January 2026.

Get refund for early payments

Of course, you do not have to wait until the deadline to pay your Corporation Tax, you can pay it as soon as you have submitted your information to HMRC. If you do this, HMRC will pay you interest at the base rate less 1% from six months and 13 days after the start of your accounting period to the payment deadline. To check out the latest interest rates, please see our blog here.

Whilst you may wish to take advantage of interest on an early payment, it is advisable to make sure this does not subsequently cause any cash flow issues and you can’t arrange a better return elsewhere. Please speak with your accountant first before making any final decisions.

Structure of the Payment Reference

The Corporation Tax Payment Reference typically follows this format: 10-digit Unique Taxpayer Reference (UTR) + A001 + 2-digit accounting period number + A

• UTR (10 digits): This is the company’s Unique Taxpayer Reference, a fixed identifier assigned by HMRC when the company registers for Corporation Tax. It’s unique to each company and remains constant.
• ‘A001’: A fixed letter that separates the UTR from the accounting period details and is the same for all companies.
• 2-digit accounting period number: Denotes the period which is being submitted, for example: 01 for the first period, 02 for the second, etc.  
• ‘A’: A fixed letter that is the same for all Companies.

Example:

• Company UTR: 1234567890
• Accounting period number: First
• Reference: 1234567890A00101A
  
  • 1234567890 (UTR) + A001 + 01(First period) + A.

The payment reference will be provided on reminders sent by HMRC at the year end and can also be found by accessing your online HMRC account. It is strongly recommended that you use these when making payment rather than creating the reference yourself as detailed above, to prevent delays or issues in allocating the payment to your Corporation Tax Account.

Setting aside funds for your annual tax bill

It is important to prepare for your Corporation Tax bill by setting aside the money throughout the year. We would recommend that you set up a separate account for tax and other savings and move enough to cover your Corporation Tax bill from your company’s current account to the savings account at the end of each quarter (or when all payments are received from your clients).  

As mentioned earlier, if your company makes a loss, this can be rolled forward and offset against profits in future accounting periods.

How Corporation Tax is submitted

Corporation Tax is submitted via HMRC’s CT600 online form. The form will include a record of your company’s income plus any expenditure such as salaries, rental of premises and other running costs.  

Once the form has been submitted, you will receive confirmation of the amount of tax you need to pay to HMRC, which you can do online.  

Deadlines, penalties and interest rates

HMRC can impose fines and added interest rates if you do not file your Company Tax Return by the deadline.‍

Time after deadline and penalties

If your tax return is late 3 times in a row, the £100 penalties are increased to £500.

Interest rate on late payments

The interest rate on late payments is charged at 4% above the Bank of England Base Rate, and will increase or decrease as the Bank of England updates its base rate. To check out the latest interest rates, please see our blog here: https://cleveraccounts.com/blog/late-payment-interest-rate

Any further questions?

If you have any questions about your next tax bill, you are welcome to advise with one of our accountants. Our experienced accounting team helps thousands of UK businesses, providing straightforward advice and support.