UK Corporation Tax 2025: What Small Businesses Need to Know
With corporation tax rates now ranging from 19% to 25%, understanding how these changes affect your small business is crucial for effective tax planning in 2025. This comprehensive guide covers everything from current rates to filing deadlines and money-saving strategies.
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Current Corporation Tax Rates for 2025
The UK corporation tax system now operates on a tiered structure based on your company's profits:
Corporation Tax Rates 2024/25:
| Profit Band | Tax Rate | Effective Rate |
|---|---|---|
| £0 - £50,000 | 19% (Small Profits Rate) | 19% |
| £50,001 - £250,000 | Marginal Relief applies | 19% - 25% |
| Over £250,000 | 25% (Main Rate) | 25% |
Understanding Marginal Relief
If your profits fall between £50,000 and £250,000, you'll benefit from marginal relief, which creates a gradual increase in your effective tax rate. The marginal rate in this band is actually 26.5%, making tax planning crucial.
💡 Example: A company with £100,000 profit pays:
- 19% on first £50,000 = £9,500
- 26.5% on next £50,000 = £13,250
- Total: £22,750 (effective rate: 22.75%)
Who Pays Corporation Tax?
Corporation tax applies to:
- Limited companies (Ltd)
- Public limited companies (PLC)
- Foreign companies with UK branches or offices
- Clubs, societies, and associations
- Co-operatives
Note: Sole traders and partnerships pay income tax on profits instead of corporation tax.
Calculating Your Corporation Tax Bill
Step-by-Step Calculation:
- Start with turnover - Your total sales/income
- Deduct allowable expenses - Operating costs, salaries, rent, etc.
- Apply capital allowances - For equipment and asset purchases
- Claim reliefs - R&D credits, patent box, etc.
- Calculate taxable profit
- Apply appropriate tax rate
Real-World Example:
Tech startup with £180,000 turnover:
- Turnover: £180,000
- Expenses: £90,000
- Capital allowances: £15,000
- R&D relief: £10,000
- Taxable profit: £65,000
- Tax: £9,500 + (£15,000 × 26.5%) = £13,475
CT600 Filing Requirements
The CT600 is your company tax return, which must be filed with HMRC. Here's what you need to know:
What's Included in CT600:
- Company profits and losses
- Corporation tax calculation
- Claims for allowances and reliefs
- Supporting computations
- Statutory accounts (iXBRL format)
Filing Process:
- Prepare your statutory accounts
- Complete tax computations
- Tag accounts in iXBRL format
- Submit online via HMRC gateway
- Pay corporation tax due
⚠️ Important: CT600 must be filed online - paper filing is no longer accepted. Ensure your accounts are in iXBRL format for digital submission.
Key Corporation Tax Deadlines
| Deadline | Requirement | Penalty for Missing |
|---|---|---|
| 3 months after accounting period | Inform HMRC of first accounts | Potential penalties |
| 9 months + 1 day | Pay corporation tax | Interest charges |
| 12 months | File CT600 return | £100 (increasing over time) |
Quarterly Instalment Payments
Large companies (profits over £1.5m) must pay tax in quarterly instalments:
- 6 months and 14 days into accounting period
- 9 months and 14 days
- 14 days after period end
- 3 months and 14 days after period end
Tax Allowances & Reliefs
Capital Allowances
- Annual Investment Allowance (AIA): £1 million (claim 100% on qualifying purchases)
- Super-deduction: Ended March 2023, replaced by full expensing
- Full expensing: 100% first-year allowance on main rate assets
- Writing down allowances: 18% main rate, 6% special rate
R&D Tax Credits
For SMEs qualifying for R&D relief:
- 86% additional deduction on R&D costs
- Total deduction: 186% of qualifying costs
- Loss-making companies: claim payable credit
Other Key Reliefs
- Patent Box: 10% tax rate on patent profits
- Creative Industries Relief: For film, TV, games, theatre
- Trading Losses: Carry back 1 year or forward indefinitely
- Group Relief: Transfer losses between group companies
Corporation Tax Saving Strategies
1. Timing of Expenses
Accelerate expenses before year-end to reduce taxable profits:
- Purchase equipment before accounting period ends
- Pay bonuses before year-end
- Prepay allowable expenses
2. Dividend vs Salary Planning
Optimize director remuneration:
- Salary up to NI threshold (£12,570)
- Employer pension contributions (no NI)
- Dividends for remaining extraction
3. Pension Contributions
Employer contributions are tax-deductible:
- No employer NI
- Reduces corporation tax
- No annual allowance issues if reasonable
4. Consider Company Structure
For profits near £50,000 threshold:
- Consider splitting into separate companies
- Use holding company structures
- Plan for associated company rules
💡 Pro Tip: If profits are near £50,000 or £250,000, small changes can have big tax impacts due to marginal rates.
Common Corporation Tax Mistakes to Avoid
- Missing deadlines - Set reminders 2 months before due dates
- Incorrect expense claims - Ensure all expenses are "wholly and exclusively" for business
- Forgetting associated companies - Thresholds are divided by number of associated companies
- Not claiming all reliefs - Review R&D, capital allowances annually
- Poor record keeping - Maintain contemporaneous records
- DIY tax returns - Complex rules make professional advice valuable
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Conclusion
Corporation tax in 2025 requires careful planning, especially with the tiered rate structure. Understanding your obligations, maximizing reliefs, and meeting deadlines are crucial for minimizing your tax bill while staying compliant.
Remember: The marginal rate between £50,000-£250,000 is 26.5%, making this profit band particularly sensitive to tax planning decisions.
Disclaimer: This article provides general information about UK corporation tax for 2025. Tax rules are complex and change frequently. Always consult a qualified accountant for advice specific to your circumstances.