This page answers ten of the most common Corporation Tax questions asked by company directors, covering payment deadlines, allowable deductions, reliefs, losses and the effect of associated companies. It is intended as a quick reference rather than a substitute for tailored advice - every company's position is different. For a plan built around your own figures, speak to TLPI.
When does my company have to pay Corporation Tax?
Corporation Tax is normally due nine months and one day after the end of the accounting period. For companies with profits over £1.5 million (or lower if there are associated companies), quarterly instalment payments apply. TLPI can help you forecast your liability and plan payments.
What counts as taxable profit for Corporation Tax purposes?
Taxable profit is broadly the company's accounting profit, adjusted for disallowable expenses and allowances. It includes trading profits, rental income, and chargeable gains on assets sold. Pension contributions, interest on business borrowings, and capital allowances are among the deductions that reduce taxable profit.
Can the Annual Investment Allowance help reduce my tax bill?
Yes. The Annual Investment Allowance (AIA) gives a 100% deduction for qualifying plant and machinery expenditure, up to £1 million per year. If your company is planning to buy equipment, vehicles, or fixtures, timing the purchase before the year-end can bring forward a significant tax deduction.
Are director salaries deductible for Corporation Tax?
Yes, provided the salary is commercially justifiable for the work done. Director salaries that are disproportionate to the director's role may be challenged by HMRC. In practice, most owner-director salaries are set at a modest level with the balance extracted as dividends - both are deductible or at least taken from post-tax profits in a planned way.
Are dividends deductible for Corporation Tax?
No. Dividends are paid from post-tax profits and do not reduce the Corporation Tax bill. This is why pension contributions are often preferred over additional salary or dividends as a method of extracting value - they reduce profit before tax rather than after it.
What is Research and Development (R&D) tax relief and could it apply to my company?
R&D tax relief allows companies that invest in qualifying research and development to claim enhanced deductions or a payable credit against their Corporation Tax liability. It applies more broadly than many directors realise - not just to technology businesses.
Does making a company pension contribution affect my personal tax?
No. An employer pension contribution is made by the company, not by you as an individual, so it does not affect your personal income tax or National Insurance position. It reduces the company's taxable profit, which reduces Corporation Tax. The funds then accumulate within your pension scheme.
What happens to Corporation Tax if I sell the company?
If your company sells its assets, any gain on those assets is subject to Corporation Tax as a chargeable gain. If you (as a shareholder) sell your shares, that is a personal Capital Gains Tax event, not Corporation Tax. Business Asset Disposal Relief (formerly Entrepreneurs' Relief) may reduce the rate to 14% for qualifying disposals up to the £1 million lifetime limit. Forward planning before a sale can make a significant difference to the overall tax cost.
Can I use losses in one year to offset profits in another?
Yes. Trading losses can generally be carried forward to offset future profits of the same trade, carried back one year against prior profits (within limits), or, in some cases, surrendered to other group companies. The rules are complex and depend on the type of loss and the company's structure.
Do associated companies affect my Corporation Tax rate?
Yes. The £250,000 and £50,000 profit thresholds (which determine whether the 25% or 19% rate applies) are divided between associated companies. Two associated companies each have thresholds of £125,000 and £25,000. If you own or control multiple companies, the effective Corporation Tax rate on each may be higher than you expect.