If you’ve started a limited company, one of the first questions you’ll probably ask is, how much Corporation Tax will my limited company pay? The answer depends on how much profit your company makes during its accounting period.
The good news is that once you understand how Corporation Tax works, it’s much easier to budget for it and avoid any nasty surprises. In this guide, we’ll explain the current Corporation Tax rates, how they’re calculated, and some simple ways to reduce your tax bill legally.
What Is Corporation Tax?
Every limited company in the UK pays Corporation Tax on its taxable profits. This includes profits made from:
- Trading income
- Investments
- Selling business assets for more than they cost (chargeable gains)
Unlike Income Tax, Corporation Tax isn’t automatically deducted. Your company is responsible for calculating how much it owes, filing a Company Tax Return, and paying HMRC by the deadline.
How Much Corporation Tax Will My Limited Company Pay?
The amount depends on your company’s taxable profits.
For the current tax rules:
- Companies with profits of £50,000 or less usually pay 19% Corporation Tax.
- Companies with profits of more than £250,000 usually pay 25% Corporation Tax.
- Companies with profits between £50,001 and £250,000 may qualify for Marginal Relief, meaning they’ll pay an effective rate somewhere between 19% and 25%.
These thresholds are reduced if your company has associated companies or your accounting period is shorter than 12 months.
Example 1
Your company makes taxable profits of £40,000.
Corporation Tax:
£40,000 × 19% = £7,600
Example 2
Your company makes taxable profits of £300,000.
Corporation Tax:
£300,000 × 25% = £75,000
Example 3
Your company makes taxable profits of £120,000.
You’ll normally qualify for Marginal Relief, so your effective Corporation Tax rate will fall somewhere between 19% and 25%. The exact amount depends on your circumstances and is calculated using HMRC’s Marginal Relief rules.
What Counts as Taxable Profit?
Before calculating Corporation Tax, you’ll need to work out your taxable profits.
This usually means taking your business income and deducting allowable business expenses.
Common allowable expenses include:
- Office costs
- Business insurance
- Staff wages
- Employer pension contributions
- Professional fees
- Travel for business purposes
- Equipment and software
- Marketing and advertising
Claiming every allowable expense can reduce your taxable profit and lower your Corporation Tax bill.
When Do You Pay Corporation Tax?
It’s important to know that Corporation Tax deadlines are different from your company accounts filing deadline.
Most companies must pay Corporation Tax 9 months and 1 day after the end of their accounting period.
Your Company Tax Return must usually be filed within 12 months of the end of your accounting period.
Missing either deadline can lead to penalties and interest from HMRC.
Can I Reduce My Corporation Tax Bill?
Absolutely. There are several legitimate ways to reduce the amount your company pays.
For example, you could:
- Claim all allowable business expenses.
- Invest in qualifying equipment that may be eligible for capital allowances.
- Make employer pension contributions.
- Review the timing of major purchases before your year-end.
- Keep accurate bookkeeping throughout the year so nothing is missed.
Planning ahead is much easier than trying to reduce your tax bill after your accounting period has ended.
Using Xero can also make it easier to keep your bookkeeping up to date, monitor profits throughout the year, and estimate your Corporation Tax position before the payment deadline.
Why Good Bookkeeping Matters
Many business owners only think about Corporation Tax when their accountant tells them how much they owe.
By keeping your accounts up to date every month, you’ll always have a clearer picture of your profits. That means you can set money aside regularly instead of facing one large bill at the end of the year.
Accurate bookkeeping also makes preparing your year-end accounts much smoother and helps ensure you don’t miss any allowable expenses.
Ready to Take the Guesswork Out of Corporation Tax?
So, how much Corporation Tax will your limited company pay? It all comes down to your taxable profits, but you do not have to work it out alone.
Most small companies with profits up to £50,000 pay 19%, while companies with profits over £250,000 pay 25%. If your profits sit between those figures, Marginal Relief may reduce your bill.
Good bookkeeping, claiming the right expenses, and checking your numbers before your year end can make a big difference.
Want a clearer idea of what your company might owe? Book a call with us today and we’ll help you understand your Corporation Tax position, spot possible savings, and plan ahead with confidence.
Comments are closed