What is corporation tax in the UK?

Summary

If you run a business in the UK, corporation tax is something you can’t ignore. It’s a mandatory tax on company profits, and understanding how it works can help you stay compliant, avoid penalties, and manage your finances more effectively. In this guide, we’ll explain who pays corporation tax, what profits are taxed, and how to register with HMRC. Corporation tax is a tax on the profits of companies operating in the UK. Unlike income tax, which applies to individuals, corporation tax is specifically for businesses and some other entities, such as charities if they generate taxable income. Businesses pay corporation tax on: * Trading profits: Money earned from business activities. * Investment income: Interest, rental income, and other financial gains. * Capital gains: Profits from selling assets like property or shares. 1. Limited companies registered in the UK. 2. Foreign companies with a branch or office in the UK. 3. Unincorporated associations, such as clubs, societies, or cooperatives, if they generate taxable income. 💡 Who doesn’t pay corporation tax? Sole traders and partnerships don’t pay corporation tax - instead, they’re taxed through their personal income tax. The rate.

Key information

• Trading profits: Money earned from business activities.
• Investment income: Interest, rental income, and other financial gains.
• Capital gains: Profits from selling assets like property or shares.
• Small profits rate (19%): This applies to businesses with profits of £50,000 or less.
• Main rate (25%): This applies to businesses with profits over £250,000.
• Marginal relief: Companies with profits between £50,001 and £250,000 may qualify for marginal relief, which gradually increases the effective tax rate between the two thresholds.
• 3 months late: An additional £100 penalty.
• 6 months late: HMRC may estimate your tax bill and add a 10% surcharge.
• HMRC charges interest on late corporation tax payments from the day after the payment deadline.
• Corporation tax from Gov.UK
• Penalties for late filing from Gov.UK
• If you run a business in the UK, corporation tax is something you can’t ignore. It’s a mandatory tax on company profits, and understanding how it works can help you stay compliant, avoid penalties, and manage your finances more effectively. In this guide, we’ll explain who pays corporation tax, what profits are taxed, and how to register with HMRC.

Practical guidance

• Source: What is corporation tax in the UK?

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