Corporation Tax in the UK: A Practical Guide for Business Owners

What is Corporation Tax?

Corporation Tax is charged on the taxable profits of UK limited companies and certain other organisations. This typically includes:

• Trading profits
• Investment income
• Chargeable gains on the disposal of business assets

Companies are responsible for calculating their Corporation Tax liability and submitting a Company Tax Return to HMRC. Corporation Tax is separate from personal taxes paid by directors and shareholders, such as Income Tax or Dividend Tax.

Corporation Tax Rates Explained

The UK operates a tiered Corporation Tax system, with rates determined by the level of taxable profits:

• Small Profits Rate (19%): profits up to £50,000
• Main Rate (25%): profits above £250,000
• Marginal Relief: applies to profits between £50,000 and £250,000

Marginal Relief provides a gradual increase in the effective rate rather than a sharp transition. These thresholds are shared between associated companies, which is particularly relevant for group structures or businesses with multiple entities.

Corporation Tax rates and thresholds are set by government policy and may change over time.

How Corporation Tax Is Calculated

Corporation Tax is not applied to turnover. It is calculated by:

1. Starting with accounting profit
2. Adjusting for tax rules
3. Applying capital allowances instead of depreciation
4. Accounting for losses and reliefs where available

The resulting figure is the company’s taxable profit. Accurate records and an understanding of allowable deductions are essential for compliance.

Common Corporation Tax Reliefs and Allowances

Allowable Business Expenses

Most day-to-day business costs incurred wholly and exclusively for trade may be deductible, such as:

• Staff costs
• Rent and utilities
• Professional fees
• Plant and machinery
• Equipment and business assets

Capital Allowances

Capital allowances allow companies to deduct qualifying capital expenditure from taxable profits. This commonly applies to:

• Plant and machinery
• Equipment and business assets

Different allowances apply depending on the asset type and timing of expenditure.

Loss Relief

Where a company makes a loss, it may be possible to:

• Carry losses forward to offset future profits
• Carry losses back to offset profits from earlier periods
• Use losses within a group, subject to conditions

Loss relief can be relevant for businesses with fluctuating profitability.

R&D and Other Reliefs

Some companies may qualify for:

• Research & Development (R&D) tax relief
• Patent Box relief
• Creative industry tax reliefs

Each has specific eligibility criteria and administrative requirements.

Planning Considerations for Profitable Companies

For businesses generating higher profits, Corporation Tax often becomes part of a wider strategic discussion rather than a standalone compliance issue.

Areas commonly considered include:

• How profits are retained or reinvested
• Timing of expenditure
• Use of group or holding company structures
• Long-term business and family objectives

The aim is not to avoid tax, but to reduce risk, avoid surprises, and align business decisions with long-term objectives.

Using Pensions in a Corporate Context (SSAS)

For some companies, pension structures form part of broader long-term planning discussions.

A Small Self-Administered Scheme (SSAS) is a corporate pension arrangement established by a limited company for its directors, senior staff, and (where appropriate) family members. Pension contributions are typically tax-deductible in line with HMRC rules and, where allowable, can reduce taxable profits. This can provide a tax-efficient way to move funds into long-term planning whilst retaining strategic control.

Unlike a traditional pension, a SSAS can invest in commercial property. This means you may be able to use a SSAS to purchase your business premises and then pay rent to the pension scheme, which is commonly treated as an allowable business expense (subject to advice and HMRC rules).

SSAS pensions can also be used to:

• Support long-term retirement planning
• Retain funds within a structured, regulated environment
• Align business planning with personal objectives

Family Investment Companies and Corporation Tax

A Family Investment Company (FIC) is a private company often used as a long-term investment and governance structure for family wealth.

From a Corporation Tax perspective, business owners commonly consider:

• How profits retained within a company are taxed at Corporation Tax rates rather than personal tax rates
• How retained profits may be reinvested over time
• How control and ownership can be structured differently

FICs are not a tax product and do not remove tax obligations. They are typically considered as part of wider family, succession, and governance planning rather than short-term tax mitigation. Professional advice is essential to ensure the structure is correct for your needs. Suitability depends on long-term objectives, family involvement, and tolerance for complexity.

Next Steps for Business Owners

Corporation Tax is not static. Rates change, profits fluctuate, and business objectives evolve.

Business owners may find it helpful to:

• Review how Corporation Tax applies to their current structure
• Understand which reliefs are relevant and why
• Consider how retained profits are used over time
• Evaluate whether existing arrangements remain appropriate

If you would like to discuss Corporation Tax within the broader context of your business, personal objectives, or long-term planning framework, a consultation with an expert at TLPI could help clarify the options and considerations involved.