Corporate tax in the UK

If you’re a self-employed business owner in the UK, you may have to pay corporate tax in the UK. However, what you are taxed on depends on whether you are classified as a resident or non-resident taxpayer in the country.

This guide covers its business aspects, including the different kinds of taxes for different businesses, how to go about paying them, as well as payment deadlines and tax credits. Sections include:

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The corporate tax system in the UK

The UK’s corporate tax code has undergone many changes in recent years. Since April 2023, the main rate has stood at 25%.

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HM Revenue and Customs (HMRC) administers and collects corporate tax in the UK. Corporations accounted for approximately £84.7 billion of receipts in 2022–23.

Who pays corporate tax in the UK?

Any incorporated business (i.e., a company registered with the Companies House) is legally obliged to pay corporation tax on its taxable profits in the UK. Such taxable profits include money that a company makes from doing business (known as trading profits), rental income from property, investment gains, as well as other chargeable gains.

Corporate tax in the UK applies to limited companies; foreign companies with a UK branch or office; clubs, co-operatives, or other unincorporated associations; and self-employed persons set up as a limited liability company.

However, unregistered companies are not liable to pay UK corporate tax. Instead, they must pay income tax on their business profits.

The type of business structure you select determines your corporate tax rates and reporting obligations. In addition, your business structure will determine how you personally take profits and any personal responsibilities you have if your business makes a loss.

Corporate tax rates in the UK

All companies except those in ring-fenced sectors pay UK corporation tax at 25%. They may be eligible for a lower rate of 10% if they can attribute profits to the exploitation of patents. Specific corporation taxes apply in four cases: for oil and gas regimes, UK life insurance companies, the banking sector in the UK, and companies that operate qualifying ships (in which case tonnage tax applies).

Tax-adjusted trading profits

Corporation tax in the UK is calculated as a percentage of your taxable profits. In general, the trading profits that you publish in your accounts (revenue minus expenditure) are not your taxable profits. Instead, you must calculate your tax-adjusted trading profits before you can pay corporate tax in the UK.

It is standard practice to hire a tax consultant to determine what taxes you need to pay. The Low Incomes Tax Reform Group also offers a great explanation of tax-adjusted trading profits.

UK corporate tax for sole traders

The simplest business form is the sole trader. Sole traders are in business for themselves and are responsible for business results, operations, setting prices, and scheduling. A critical distinction between sole traders and employees is that the sole trader works for several clients at the same time, so avoids issues of economic dependence associated with being an employee.

On the other hand, sole traders in the UK are distinguished from limited business structures. The sole trader business is an extension of the business owner, even if the business has other employees. In contrast to limited companies, the sole trader business is not a legal entity separate from the owner.

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As a sole trader, all business profits belong to you personally. This means that tax on profits as a sole trader will be added to your other personal income and assessed at your personal tax rate. This rate ranges from 0% to 45% in England, Wales, and Northern Ireland, while the top rate is 46% in Scotland.

As a sole trader in the UK, you’ll need to:

• Keep records of your business’s sales and expenses
• send a Self Assessment tax return every year
• pay income tax on your profits and Class 2 and Class 4 National Insurance
• Register for VAT if your turnover is over £85,000

Corporate tax in the UK for partnerships

The UK offers several types of partnerships to meet your business structuring needs. Regardless of the type of partnership, all partners share the business’s taxable profits, and each partner pays tax on their share. Each partner will need to file a personal self-assessment form and pay both income tax and National Insurance on their portion of the partnership profits.

Partnerships that expect to achieve more than £85,000 in sales must also register for VAT.

Corporate tax in the UK for limited companies

Whereas sole trading and partnership businesses are an extension of the individual, limited companies are legal entities in their own right. Thus, the limited company must have separate bank accounts and records, and any profits earned belong to the company, not the individual. There are two types of limited companies in the UK: limited by shares and limited by guarantee.

All limited companies must pay corporation tax on their profits – 25% on net earnings in most cases. The company must complete its company corporation tax return (CT600) annually. After paying the corporate income tax, the remaining profits may then be distributed among the members or shareholders. Recipients must claim their distributions on a self-assessment form. Large companies face some additional compliance and reporting requirements.

If you are the director of a limited company, you accept legal responsibilities for the performance, taxes, and reporting of the company. This also means you can be held personally responsible if the company does not comply with the relevant laws and regulations. In addition, as a director of the company, you must file a personal self-assessment return with the HMRC.

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Off-payroll working rules (IR35) that impact limited company directors. In short, freelance and self-employed workers who provide services through their own limited company (sometimes known as a personal service company) or another intermediary no longer assess their own tax status. Instead the responsibility shifts to the private-sector businesses that hire them. This also applies to all businesses and workers in the public sector. HMRC has compiled a number of resources to help companies come into compliance with the new regulations.

Special corporation tax regimes

Businesses operating in four specific sectors in the UK can avail themselves of special corporation tax regimes:

• Oil and gas companies
• Life insurance companies
• Tonnage Tax regime
• Banking sector

Besides the four sectors listed above, there are no special UK corporate tax rates for particular types or sizes of business activity. By and large, all companies in every sector are subject to the same corporation tax rates and rules. However, it is worth bearing in mind that several reliefs, research & development credits, and anti-avoidance rules might apply, depending on the size of the corporation.

Online tax calculators

A number of online corporate tax calculators are available, such as this one from UK Tax Calculators.

Corporate tax reliefs and exemptions in the UK

Companies operating in the UK may apply deductions or claim credits on their taxes. HMRC offers specific reliefs on the following:

• Research and development
• Patents
• Creative industries
• Goodwill and other assets, such as customer relationships and unregistered trademarks
• Disincorporation
• Marginal reliefs
• Terminal, capital, as well as property income losses
• Trading losses

Companies can pay lower corporate taxes in the UK by deducting donations to charities or community amateur sports clubs from total business profits. Compensatory fines and damages including payments to employees for wrongful dismissal are also tax-deductible, but punitive penalties are not.

For more information specific to your business, seek professional advice.

VAT in the UK

Companies operating in the UK also need to charge and pay VAT at 20%. Domestic fuel and power and certain other reduced-rate supplies are subject to VAT at 5%. Under certain conditions, some small traders may adopt a special flat-rate scheme, which computes VAT at a sector-specific rate. Items such as children’s clothes, books and newspapers, and goods exported to non-EU countries are charged at 0% VAT.

Companies with a taxable turnover of over £85,000 must register for VAT. There are two tests to determine when you need to start paying VAT:

• Firstly, when your 12-month running total of sales revenue crosses reaches the VAT registration threshold. This is the total amount for a month and the preceding 11 months. It applies to any consecutive 12-month period. Here, you have until the end of the following month to register. For example, if your VAT taxable turnover exceeds £85,000 for the 12 months to 30 June 2024, you need to register for VAT by 31 July 2024.
• Secondly, you need to register immediately for VAT at the start of any 30-day period if you believe your taxable turnover for that period alone will cross the VAT threshold.

The UK’s VAT regime

Most businesses can register online. When you do so, you create a VAT online account (also called a government gateway account), which you require in order to submit your VAT returns. You then need to provide details such as turnover, business activity, and bank details when registering for VAT in the UK. You will receive a VAT registration certificate within 30 working days, though it can take longer.

Now that the UK has exited the European Union, the Government no longer has to adhere to the EU’s minimum VAT rate of 15%. However, authorities have indicated that the UK is unlikely to diverge too far from current rates in the near future.

VAT deadlines

VAT returns must be filed every month or every three months, depending on the size of the company. All businesses must file VAT returns online and make electronic payments. However, smaller enterprises can apply for annual returns. The deadline for VAT returns is usually 30 days after the end of the period.

The corporate tax year in the UK

The UK’s corporate tax year runs from 1 April to 31 March the following year. The financial year is commonly referred to as the start of the year. For example, the tax year 1 April 2024 to 31 March 2025 may also be referred to as FY2024.

The deadline to settle a company’s corporation tax liability for the accounting period is nine months and one day after the end of the period for companies with taxable profits below £1.5 million. Your accounting period is usually your financial year, but you may have two accounting periods in the year you set up your company.

For large companies with taxable profits of more than £1.5 million, corporation tax is due in four quarterly installments. These are payable online. Companies with an annual taxable profit of more than £20 million follow a different payment schedule.

How to file your corporate tax return in the UK

File your corporate tax returns online.

You do not send a corporate tax return if you’re self-employed as a sole trader or in a partnership. However, you must send a self-assessment return. If you have a limited company, you may be asked to file your accounts with Companies House at the same time as your tax return. The deadline for corporate tax returns is 12 months after the end of the accounting period it covers. You must usually make any changes or amendments within 12 months of the filing deadline.

Other types of business taxes in the UK

A number of other business taxes are payable in the UK. While many of these taxes are sector-specific, others apply to specific types of industry. A broad overview is below.

Employers’ national insurance contributions (NICs)

Employers are obliged to pay NICs based on a percentage of each employee’s earnings. The 2023–24 rate is 15.05% on all earnings above £175 per week. Businesses are exempt from the first £4,000 per year (maximum) of this liability. There are no other payroll taxes, but employers remain responsible for deducting employees’ income tax liability at source, through the pay-as-you-earn (PAYE) system.

Diverted Profits Tax

In certain circumstances, companies operating within the UK may be liable to pay diverted profits tax. In most cases, it is levied at 25% on diverted profits and applies in two situations in which companies and groups create tax benefits or mismatches.

Capital Gains Tax

Self-employed and partnership businesses operating in the UK may have to pay capital gains tax on any profits from the sale of all or part of a business asset. Such assets include the following:

• Land and buildings
• Fixtures and fittings
• Plant and machinery
• Shares
• Registered trademarks
• Your business’s reputation

Limited companies pay corporation tax on profits from selling their assets instead.

Property-related taxes

In the UK, businesses must pay stamp duty at 0.5% on instruments affecting sales of shares. Agreements to sell shares usually attract stamp duty reserve tax (SDRT) at 0.5%, although stamp duty is not usually charged on an issue of shares. Stamp taxes also apply to acquisitions of non-residential or mixed land and buildings. There are specific land and buildings taxes in Scotland and Wales.

Companies renting business premises are also liable to pay local municipal taxes.

Other business taxes

The UK has several other business taxes. These include the following:

• Annual tax on enveloped dwellings (on the acquisition and holding of residential properties over £500,000)
• Apprenticeship levy
• Offshore receipts in respect of intangible property tax
• Pension protection fund levy
• Soft drinks industry levy
• Bank levy
• Insurance premium tax
• Environmental taxes, including landfill tax, climate change levy, aggregates levy, and plastics tax
• Carbon reduction commitment

Taxes for non-resident companies

Non-resident companies which carry on a UK property business have been liable to pay the 25% corporation tax on income received from UK property. These businesses are also liable for UK corporation tax in respect of debits or credits that arise from loan relationships or derivative contracts that the company is a party to for the purpose of that business.

Corporate tax fines in the UK

If you don’t file your corporate tax returns by the deadline (12 months after the end of the accounting period it covers) the HMRC charges late filing penalties according to the schedule below:

If your tax return is late three times in a row, the £100 penalties increase to £500 each. Furthermore, if you pay your corporation tax late, don’t pay enough, or don’t pay at all, HMRC will charge you late payment interest.

Corporate tax advice in the UK

With such a wide variety of taxes on businesses operating in the UK, it is advisable to consult a chartered accountant to advise on corporate taxation, social security charges, tax law, and any available refunds, for example.

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You can find an accountant through the Institute of Chartered Accountants in England and Wales or via the Institute of Financial Accountants, which lets you search for professionals via location. Alternatively, head online to a comparison service like Unbiased to find the right advisor for you.

Useful resources

• HMRC
• Tax offices around the UK
• Chartered Institute of Taxation