How much is Corporation Tax?

Corporation Tax is 19% on profits up to £50,000 (the small profits rate) and 25% on profits over £250,000 (the main rate). Profits between £50,000 and £250,000 are taxed at the main rate but reduced by Marginal Relief, giving an effective rate that climbs gradually from 19% to 25%. The thresholds are shared if your company has associated companies or a short accounting period, which lowers them. For most small companies the rate that matters is the 19% small profits rate.

Legitimately, the main levers are claiming every allowable business expense, using capital allowances on equipment and qualifying assets, making employer pension contributions, and claiming any reliefs your company is entitled to such as R&D relief or the Annual Investment Allowance. Timing larger purchases and paying salaries and pensions before your year end can also help. None of this is aggressive or risky, it is simply making sure the figure you pay tax on is correct, which is a core part of what we do for company clients.

On profit, not turnover. Corporation Tax is charged on your taxable profit, which is your income less allowable business expenses and any reliefs and capital allowances. So two companies with the same sales can owe very different amounts depending on their costs. This is exactly why accurate bookkeeping matters: every allowable cost you capture reduces the profit you are taxed on.

No. Dividends are paid out of profit after Corporation Tax has been calculated, so they do not reduce the company’s Corporation Tax bill. A director’s salary, by contrast, is a business expense and does reduce it. Dividends are still tax-efficient overall because they carry no National Insurance and are taxed at lower dividend rates in your hands, which is why a salary and dividend mix usually works well, but the saving is on your personal tax, not the company’s.

For most small companies, Corporation Tax is due 9 months and 1 day after the end of your accounting period, which is actually before the deadline to file the company tax return (12 months after period end). So you usually pay first and file shortly after. Large companies with profits over £1.5 million pay in quarterly instalments instead. Missing the payment date means interest, so it pays to know your figure early, which is why we prepare accounts in good time.

Start with your profit, add back anything not allowable for tax (such as client entertaining or depreciation), deduct capital allowances and any reliefs, and apply the rate to the result. In the Marginal Relief band the maths is fiddlier because of the gradual taper. Our corporation tax calculator gives you a quick estimate, and we prepare the exact computation as part of your year-end accounts so nothing is missed and nothing is overstated.