Corporation tax UK: rates, deadlines and HMRC penalties

Are you finding it difficult to keep up with your company’s tax requirements? You are not alone. Managing compliance and deadlines takes time, and mistakes can be costly. This guide explains your core legal duties and how to meet them accurately. For broader legal guidance, read our article regarding the responsibilities of a company director. If you need immediate assistance, we recommend finding a tax solicitor to support your business.

KEY TAKEAWAY: What is the corporation tax rate in the UK?

The main corporation tax rate in the United Kingdom is 25 percent for companies with profits exceeding £250,000. Companies with profits under £50,000 pay the small profits rate of 19 percent. If your profits fall exactly between these figures, you will pay the main rate reduced by marginal relief.

What are the current corporation tax rates in the United Kingdom?

Your company pays Corporation Tax to HM Revenue and Customs (HMRC) on its taxable profits. Since April 2023, the UK uses a tiered system based on your annual earnings:

• Small Profits Rate (19%): Applies to companies with profits under £50,000.
• Main Rate (25%): Applies to companies with profits over £250,000.
• Special Rate (20%): Applies strictly to unit trusts and open-ended investment companies.

Profits between £50,000 and £250,000 are subject to a tapered rate, which gradually bridges the gap between the small profits rate and the main rate.

How to apply the small profits rate corporation tax and corporation tax marginal relief

If your profits fall between £50,000 and £250,000, you can claim Marginal Relief. This reduction ensures your tax rate increases gradually rather than jumping instantly from 19 percent to 25 percent.

How it works

1. Calculate your tax at the 25 percent main rate on total profits.
2. Deduct the relief using the standard HMRC fraction of 3/200.

Here is a fictional scenario to explain this calculation:

Thames Traders Limited has taxable profits of £100,000.

• Initial Tax (25%): £25,000
• Upper Limit Difference: £250,000 minus £100,000 = £150,000
• Marginal Relief: £150,000 multiplied by 3/200 = £2,250
• Final Tax Bill: £25,000 minus £2,250 = £22,750

Understanding ring fence companies and their specific tax rates
Companies extracting oil or holding oil rights in the UK or UK Continental Shelf (UKCS) face specific “ring fence” tax rules.

The corporation tax rates are:

• Small Ring Fence Profits Rate (19%): For profits under £50,000.
• Main Ring Fence Profits Rate (30%): For profits over £250,000.

Marginal Relief: For profits between £50,000 and £250,000, Marginal Relief bridges the transition, calculated using a ring fence fraction of 11/400.

How to calculate taxable profits and chargeable gains for your UK corporation tax rate

Your Corporation Tax is based on taxable profits, not total revenue.

Taxable profit includes:

• Trading Profits: Earnings from regular business activities.
• Investments: Interest from bank accounts or investments.
• Chargeable Gains: Profits from selling business assets (like property, commercial buildings, or intellectual property rights) for more than their original cost.

When calculating chargeable gains, you can use an indexation allowance to offset inflation. However, this allowance was frozen on 31 December 2017. For any asset bought before 1 January 2018 but sold after that date, the allowance is strictly locked to the December 2017 Retail Prices Index (RPI) factor.

When is corporation tax due and what is the corporation tax deadline?

Missing your payment deadline may trigger complications for your business operations. The precise deadline depends on your taxable profits and your accounting period (the timeframe over which your company calculates its profits and losses for tax reporting).

Payment Deadlines

• Profits up to £1.5 million: You must pay your tax exactly nine months and one day after the end of your accounting period.
• Profits over £1.5 million: You must pay your tax in automatic instalments.

Approved Payment Methods

You cannot pay your tax bill by post. Choose a method that allows enough time for your payment to clear:

• Same day or next day: Online bank account payment, Faster Payments, CHAPS, or online corporate credit card.
• Three working days: Existing Direct Debit or Bacs.
• Five working days: New Direct Debit (if not set up previously).

HMRC corporation tax penalties: what is the late corporation tax payment penalty?

If you miss your payment deadline, HM Revenue and Customs (HMRC) will automatically penalise your company. While this differs significantly from vehicular compliance offences such as driving without road tax, HMRC enforces automated financial penalties strictly across all business taxation areas.

Interest Charges

Daily interest is charged on unpaid tax from the day after the deadline until the debt is cleared. Because these rates can compound quickly, prompt payment is essential. Conversely, HMRC will pay you interest if you pay early.

Key Requirements

• Payment Reference: You must use the exact 17-character Corporation Tax reference number found on your ‘notice to deliver a tax return’ when paying penalties.
• Nil Returns: If no tax is owed, you must still formally notify HMRC that no payment is due.

Preparing for your corporation tax filing deadline to avoid fines

Reporting and paying tax are separate obligations. A Company Tax Return must be filed online with HMRC to report profits or losses and calculate Corporation Tax.

Key Rules

• Deadline: Exactly 12 months after your accounting period ends.
• Nil Returns: You must still file even if your company made a loss or owes no tax.
• Paper Filing: Post is only allowed for genuine reasonable excuses or Welsh language filings.
• Penalties: Missing the deadline may trigger an automatic penalty, even if no tax is owed.

To illustrate the severity of these rules, consider this fictional scenario.
Bristol Manufacturing Ltd filed its return just two days late due to an administrative error. Even though the company made a loss that year and owed zero tax, HMRC automatically issued a fixed penalty that the directors had to pay immediately.

Directors’ responsibilities: keeping company records and avoiding disqualification

When you operate a limited company, the legal burden falls entirely on you as a director. These statutory responsibilities cannot be ignored or delegated to an accountant.

Specifically, you must:

• Follow the company’s articles of association.
• Keep detailed records and report information promptly.
• File accurate annual accounts with Companies House.
• Declare any personal benefit from company transactions.
• Pay Corporation Tax on time.

Failing to meet these duties carries severe consequences. You could face fines, personal prosecution, or formal disqualification from being a director, particularly during a company liquidation process where past financial conduct is heavily scrutinised.

FAQs

Do I still need to file a Company Tax Return if my limited company makes a loss?

Yes. You must file a Company Tax Return within twelve months of your accounting period ending, even if your company makes a loss or has no corporation tax to pay. Failure to file after receiving an HMRC notice may trigger late filing penalties.

When is corporation tax due?

For most companies, corporation tax is due nine months and one day after the end of the accounting period. Large companies with profits over £1.5 million must pay by instalments during the accounting period.

What happens if corporation tax is paid late?

Late payments are subject to HMRC interest charges until the balance is paid. Failing to file a Company Tax Return within twelve months may also result in fixed penalties, even if no tax is due.

Meeting your corporation tax obligations is essential to avoid unnecessary penalties. Understanding the applicable tax rates, deadlines, and record-keeping requirements helps your company remain compliant and manage its liabilities effectively.

This guide provides general information only and does not constitute legal advice.

Facing HMRC penalties or a tax dispute?

Qredible’s network of specialist solicitors can help businesses challenge penalties, resolve HMRC disputes, and navigate tax tribunal proceedings.

KEY TAKEAWAY:

• Tiered tax rates: Companies with profits below £50,000 pay 19%, those above £250,000 pay 25%, while profits between these thresholds may qualify for marginal relief.
• Strict deadlines: Corporation tax is usually due nine months and one day after the accounting period ends, and the tax return must be filed within twelve months.
• Automatic penalties: Late filing can trigger fixed penalties even if no tax is owed, while late payments incur interest.