What is Corporation Tax?

When a business operates as a limited company, its profits are subject to a different tax from the Income Tax paid by sole traders. Corporation Tax is levied on limited company profits, and understanding how it works — including when it is due and how the liability is calculated — is one of the core financial obligations every company director needs to be aware of.

Corporation Tax is levied on the taxable profits of UK limited companies, calculated after allowable business expenses and other deductions have been subtracted from trading income. Unlike Income Tax for sole traders, it is paid by the company itself rather than by individual directors or shareholders. The company must register for Corporation Tax with HMRC, file a return for each accounting period, and pay any tax owed within the required timeframe after the accounting period ends.

The rate of Corporation Tax and any reliefs available are set by the government and may change over time — current rates should always be confirmed with HMRC or an accountant. Planning around Corporation Tax, including understanding which expenses are deductible, is an area where professional advice typically pays for itself. Our guide to Corporation Tax for UK limited companies covers the key principles and compliance requirements.