What are the Corporation Tax Rates?

The primary tax obligation for a limited company is corporation tax which applies to both the profits generated by the company and any capital gains resulting from the sale of appreciated assets, such as land, property or shares.

Limited companies are required to pay corporation tax based on the applicable rates for their accounting period.

For companies the corporation tax rates payable can vary and are based on profits (income generated after deducting any overhead costs and expenses).

The government can change corporation tax rates meaning that calculating your company’s corporation tax rate ahead of payment time is beneficial.

Corporation tax rates for 2023/2024

Companies will be subject to the corporation tax main rate of 25 percent if their reported profits exceed £250,000.

Smaller companies with profits up to £50,000 will be taxed at the small profits rate of 19 percent.

For businesses that fall between the profit range of £50,000 and £250,000 the main rate of 25% applies less applicable marginal relief.

• Corporation tax main rate is 25% for profits from £250,000.
• Corporation tax small profits rate is 19% for profits of £50,000 or below.
• Corporation tax main rate of 25% less marginal relief for profits from between £50,000 and £250,000.

Unlike other taxes there is no corporation tax threshold with tax payable on all qualifying company profits.

Corporation tax rates marginal relief

Company profits from £50,000 up to £250,000 will be taxed at a gradually increasing corporation tax rate which is calculated using the marginal small companies’ relief.

The marginal relief lower limit is £50,000 and the marginal relief upper limit is £250,000.

Marginal relief takes into account a companies profits falling within the lower and upper limits and the calculated corporation tax rate applies to all of a company’s profit.

For reference we have listed below an approximate corporation tax rate at some profit levels over £50,000:

• Company profits: £75,000 @ corporation tax rate 21.50%.
• Company profits: £100,000 @ corporation tax rate 22.75%.
• Company profits: £150,000 @ corporation tax rate 24%.
• Company profits: £200,000 @ corporation tax rate 24.63%.

You can use the HMRC marginal relief calculator to work out if marginal relief can be used to reduce your corporation tax bill.

To use the marginal relief calculator you will need of the following:

• The start and end dates of the accounting period for the company.
• The overall taxable profit of the company.
• Any distributions received from companies that are not part of the same group or are unassociated.
• Information regarding any associated companies.

What are corporation tax reliefs?

Corporation tax reliefs come in a variety of forms and can be used to reduce corporation tax.

Making use of the available tax reliefs for your company is vital to ensure your company is ran as tax efficiently as possible.

Some of the tax reliefs available for companies include:

• Company losses.
• Research and development tax credits.
• Patent box tax relief.
• Creative industry tax reliefs (HMRC currently offer eight different ones).

Before using any tax relief scheme it’s important to fully understand the rules and broader implications to keep your company HMRC compliant.

What are corporation tax allowances?

Like tax reliefs corporation tax allowances can be set off against company profits to lower a companies corporation tax bill.

Tax allowances or deductions are typically the expenses incurred in running your business.

When it comes to expenses the basic rule states that a cost can be deducted from taxes if it is incurred entirely, exclusively, and indispensably for business related reasons.

HMRC allows most expenses to be deductible (but not all) with some of the more common allowable expenses including:

• Professional fees like tax advice, accountancy and legal.
• Staff costs like salaries.
• Materials.
• Stock.
• Finance interest.
• Business insurance.
• Utility bills.
• Rent.
• Business rates.

Only deducting permissible tax allowances is critical to maintaining accurate and HMRC compliant accounting records.

What is ring fence corporation tax?

Ring fence corporation tax (RFCT) functions similarly to corporation tax.

However, it is specific to companies engaged in the production of oil and gas within the United Kingdom, including the UK Continental Shelf, which encompasses areas such as the North Sea, the North Atlantic Ocean, the Irish Sea, and the English Channel.

The primary rate for ring fence corporation tax stands at 30%, while there is also a secondary rate of 19% applicable to smaller profits.

Corporation tax payment deadline

If your company’s taxable profits are £1.5 million or lower it’s required that you settle your corporation tax within a timeframe of nine months and one day following the conclusion of your accounting period.

For companies with taxable profits exceeding the £1.5 million threshold you will be required to make payments in instalments.

Corporation tax rates and dividends

Dividends refer to the monetary distributions that a company gives to its shareholders as a result of generating profits.

Companies are not required to pay corporation tax on dividends but the individual shareholders who receive dividends exceeding the tax free dividend allowance will be liable to pay income tax on dividends received.