UK Corporation Tax: A Simple Guide for Small Business Owners

Miscellaneous / By Kyra McKay

UK Corporation Tax is calculated based on a business’s annual profits. It’s done in the same way that income tax is calculated for individuals.

Unlike individuals, all business earnings are taxed as they do not get any form of tax-free allowance. There are, however, a variety of charges and deductions that may be claimed to lower the bill.

UK corporation tax

How is it calculated?

Corporation tax is calculated using a business’s annual profits. Although all earnings are taxed, certain expenses can be deducted, and there are allowances available to help decrease tax liability.

Who is it for?

All UK limited companies are required to pay corporation tax. Sole traders do not pay corporation tax. Instead, they must file a tax return and pay income tax on their earnings.

As a member of a limited company, you must keep accurate records of all your business expenses to calculate how much Corporation Tax you owe.

Make sure you register your company with HMRC for Corporation Tax. Unless your company is inactive, you must do this within three months of registering with Companies House. When you start a new business, you must notify HMRC by re-registering for Corporation Tax. To register for Corporation Tax — you’ll need the Unique Taxpayer Reference number you obtained from HMRC when you registered your company with Companies House.

Even if they are not incorporated, the following groups may be required to pay it:

  • Trade Associations
  • Clubs, groups, and organisations with members
  • Housing associations
  • Individuals working in groups to conduct a business (such as co-operatives)

Late penalty for UK corporation tax

HMRC can fine you if you are late filing your return, paying your tax bill, or providing inaccurate information.

Business directors can be held responsible and pay the penalty, even if an accountant filed and submitted the return.


Paying corporation taxes may be more advantageous to business owners than paying additional individual income taxes. It is also simpler for a business to deduct losses.

A business can deduct the entire amount of losses, but a sole trader must present evidence of intent to profit before losses can be deducted. Finally, a corporation’s earnings can be kept within the business, enabling tax planning and future tax advantages.

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