What is corporation tax

Corporation tax is paid by businesses in the UK, and is calculated on their annual profits, in a similar way to income tax for individuals.

The corporation tax rate has been 19% for all limited companies since April 2016. Prior to this, the rate varied depending on the company’s profits.

Unlike individuals, companies don’t receive any kind of tax-free allowance, and therefore all profits are taxable. However, there are a number of expenses and deductions that can be claimed to reduce your bill.

At Budget 2020, the government announced that the Corporation Tax main rate (for all profits except ring fence profits) for the years starting 1 April 2020 and 2021 would remain at 19%.

On 23 September 2022, the government announced that the increase in the Corporation Tax main rate to 25% and the introduction of a small profits rate of tax from 1 April 2023 (previously announced at Spring Budget 2021) would no longer go ahead. The Corporation Tax main rate will, therefore, remain at 19% from 1 April 2023.

Who pays corporation tax?

Corporation tax is payable by all UK limited companies.

The following organisations may also need to pay it, even if they’re not incorporated:

• Members clubs, societies and associations
• Trade associations
• Housing associations
• Groups of individuals carrying out a business (such as co-operatives).

If you’re a sole trader or partnership, you won’t pay corporation tax. Instead, you’ll pay income tax on your profits via a self-assessment tax return. You can find out more in our guides about income tax for the self-employed.

It is the responsibility of the company director to ensure that the corporation tax return has been submitted on time, and the tax bill has been paid – even if the company hires an accountant to prepare their calculations.