Corporation Tax is charged on the taxable profits of limited companies and certain other organisations. A company must maintain sufficient accounting records, calculate its liability, pay HMRC by the applicable payment deadline and submit a Company Tax Return for the accounting period.
The timetable can be confusing because the Corporation Tax payment deadline normally falls before the filing deadline. A small company may need to pay its estimated liability nine months and one day after the accounting period ends, while its Company Tax Return is not due until 12 months after that date.
Directors should therefore monitor profit and estimated tax throughout the year rather than waiting for the annual accounts to be completed. Late payment creates interest, while late filing can produce separate fixed and tax-related penalties.
How Corporation Tax works
A limited company pays Corporation Tax on its taxable profits. These can include trading profits, investment income and chargeable gains arising when business assets are sold.
The accounting profit shown in the annual accounts is the starting point rather than necessarily the final taxable figure. Adjustments may be required for depreciation, capital allowances, entertaining, private expenditure and other items receiving different accounting and tax treatment.
The company is responsible for calculating the tax due through Corporation Tax Self Assessment. HMRC does not normally issue a bill before the payment deadline.
The directors must therefore ensure that suitable records are available and that the liability is calculated in time. HMRC’s Corporation Tax guidance explains the principal responsibilities applying to companies.
Current Corporation Tax rates
The Corporation Tax main rate is currently 25 per cent for companies with profits above £250,000. The small profits rate is 19 per cent for qualifying companies with profits of £50,000 or less.
Companies with profits between £50,000 and £250,000 may qualify for Marginal Relief. This gradually increases the effective tax rate between the small profits rate and the main rate.
The thresholds apply to a normal 12-month accounting period and can be reduced where the accounting period is shorter. They are also divided according to the number of associated companies.
For example, where two associated companies exist throughout the relevant period, the £50,000 and £250,000 thresholds may effectively be divided between them. A company should not assume that the full limits apply without checking its ownership and control relationships.
HMRC’s Corporation Tax rates guidance provides the current rates, thresholds and Marginal Relief information.
The Corporation Tax accounting period
A Corporation Tax accounting period normally begins when the company starts trading or becomes liable to Corporation Tax. It ends at the company’s accounting date, when the company stops trading or after 12 months, whichever occurs first.
A Corporation Tax accounting period cannot exceed 12 months. If a company prepares statutory accounts covering more than 12 months, it will normally need two Company Tax Returns covering separate accounting periods.
This can happen with a new company whose first statutory accounts cover more than one year. The Companies House accounts period and Corporation Tax accounting periods should therefore not be assumed to be identical.
HMRC should be notified when a company becomes active and liable to Corporation Tax. A dormant company may have different requirements, although it should still respond to any formal notice to file issued by HMRC.
Corporation Tax payment deadline
For companies that are not required to pay by instalments, Corporation Tax is normally due nine months and one day after the end of the relevant accounting period.
A company with an accounting period ending on 31 March 2026 would normally have a payment deadline of 1 January 2027.
A company with an accounting period ending on 30 June 2026 would normally need to pay by 1 April 2027.
The payment deadline applies even where the Company Tax Return has not yet been filed. The company must calculate a reasonable estimate of the liability from its accounting records and make payment on time.
HMRC’s guidance on paying Corporation Tax explains the normal payment deadline, methods and reference requirements.
Company Tax Return filing deadline
The Company Tax Return is normally due 12 months after the end of the accounting period it covers.
For an accounting period ending on 31 March 2026, the usual filing deadline would therefore be 31 March 2027. The associated tax payment would normally already have been due on 1 January 2027.
The return commonly includes the CT600 form, the company’s statutory accounts and the Corporation Tax computation showing how taxable profit and the liability were calculated.
Companies generally need commercial software to file the return electronically. HMRC’s older online filing service is being withdrawn, so companies and agents should ensure that suitable software is available before the deadline.
The government’s Company Tax Return guidance explains who must file and what must accompany the return.
Why the payment deadline comes first
The earlier payment deadline can appear unusual because the final return confirming the liability may be filed three months later.
Corporation Tax Self Assessment places responsibility on the company to calculate and pay the correct amount without waiting for HMRC to assess it.
This means the bookkeeping and annual accounts process must begin early enough to estimate the liability before nine months and one day have passed.
A company should not delay payment simply because a final accounting adjustment or tax computation remains outstanding. It can make a reasonable payment based on the available information and settle any difference when the calculation is completed.
Where too much has been paid, the company may be able to request a repayment or leave the amount on its HMRC account according to the circumstances.
Using the correct payment reference
Corporation Tax payments should use the 17-character reference for the specific accounting period being paid. This is not always the same reference used for an earlier period.
The reference can normally be found in the company’s HMRC online account, payment reminder or payslip. It commonly includes the company’s Unique Taxpayer Reference followed by characters identifying the accounting period.
Using the wrong reference can cause HMRC to allocate a payment to another period. The intended liability may then continue showing as unpaid and accrue interest even though money has left the company’s bank account.
The bookkeeping should retain the payment confirmation and show which accounting period the payment related to. The HMRC account should be checked afterwards to confirm that the payment was allocated correctly.
Interest on late Corporation Tax payments
HMRC charges late-payment interest from the day after the Corporation Tax payment deadline until the liability is paid.
There is no general interest-free grace period. A company paying several days late can therefore be charged interest for each day that the tax remained outstanding.
The interest rate changes when HMRC updates its official rates. The current late-payment rate should be checked rather than relying on a fixed percentage quoted in an older article.
HMRC’s late and repayment interest guidance publishes the rates applying to Corporation Tax and other liabilities.
Late-payment interest is separate from any penalties for filing the Company Tax Return late. Paying the tax does not remove the filing obligation, and filing the return does not remove interest on tax paid after the deadline.
Penalties for filing one day late
A Company Tax Return filed after the deadline can attract an automatic fixed penalty. For current filing failures, the first penalty is £200 when the return is one day late.
The penalty can apply even where the company has no Corporation Tax to pay or has already paid the estimated liability in full.
This is because the penalty concerns the failure to submit the return rather than the amount of unpaid tax.
The directors should therefore ensure that a nil return or loss-making return is still filed where HMRC has issued a notice requiring one.
Penalties after three months
If the Company Tax Return remains outstanding three months after the deadline, HMRC can charge another £200 fixed penalty.
The total fixed penalties can therefore reach £400 before the six-month tax-related charge is considered.
Where the company has filed late three times in succession, the fixed penalties can increase substantially. The £200 penalties are increased to £1,000 each.
A company with repeated late filing could therefore face £2,000 of fixed penalties before tax-related penalties and interest are added.
Penalties after six months
When the Company Tax Return becomes six months late, HMRC can estimate the company’s Corporation Tax liability. This is known as a tax determination.
HMRC can also charge a penalty equal to 10 per cent of the unpaid Corporation Tax.
The determination is based on the information available to HMRC and may be higher than the liability the company would calculate from its actual records.
The company cannot replace the determination merely by arguing that it is excessive. It must file the outstanding return so HMRC can recalculate the tax, interest and penalties using the actual figures.
Penalties after 12 months
If the return remains outstanding for 12 months, HMRC can charge another penalty equal to 10 per cent of the unpaid Corporation Tax.
This is added to the earlier fixed penalties, six-month penalty and any interest on tax paid late.
The cost of failing to file can therefore become substantial where the company also owes Corporation Tax. Continuing to delay after receiving the first penalty rarely improves the position.
HMRC’s late Company Tax Return penalty guidance sets out the current £200 fixed penalties and the later tax-related charges.
Reasonable excuse and penalty appeals
A company may appeal a late-filing penalty where it had a reasonable excuse for failing to meet the deadline.
A reasonable excuse is generally an unexpected event that prevented the company from complying despite reasonable care having been taken. Examples can include serious illness, bereavement, fire, flood or a significant software or HMRC system failure.
The company should file the outstanding return before appealing and retain evidence showing what happened, when the problem began and when it ended.
A lack of awareness of the deadline, pressure of work or insufficient funds to pay the tax will not normally explain why the return itself could not be filed.
The appeal should follow the instructions on the penalty notice. HMRC’s guidance on appealing a tax penalty explains the available process.
Companies paying Corporation Tax by instalments
Larger companies do not normally use the standard payment deadline of nine months and one day. They may need to make quarterly instalment payments based on their estimated liability.
A company is generally treated as large where its annualised profits exceed £1.5 million. This threshold is divided by the number of associated companies and can also be adjusted for short accounting periods.
A company with profits not exceeding £10 million may receive a first-year exemption from instalment payments where it was not large during the previous 12 months, subject to the detailed conditions.
Very large companies, broadly those with annualised profits above £20 million after relevant adjustments, operate under an earlier instalment timetable.
HMRC’s Corporation Tax instalment payment guidance explains the large and very large company rules.
Associated companies and tax thresholds
Associated companies can affect the Corporation Tax rate thresholds and the limits used for quarterly instalment payments.
Companies may be associated where one controls the other or both are controlled by the same person or group of people. The analysis can include companies that appear commercially separate but remain under common control.
The £50,000 small profits threshold and £250,000 main-rate threshold are divided by the total number of associated companies, including the company itself.
For example, where four associated companies exist, the effective thresholds for each may be reduced to £12,500 and £62,500 for a normal 12-month period.
The associated-company rules can be complex where family ownership, dormant companies or changing control are involved. The company should obtain appropriately qualified tax advice rather than relying only on names or Companies House ownership percentages.
Companies House deadlines are separate
Companies House annual accounts and the Company Tax Return are separate filings made to different government bodies.
Submitting the statutory accounts to Companies House does not file the Company Tax Return with HMRC. Paying Corporation Tax also does not satisfy either filing obligation.
Private companies normally file annual accounts with Companies House within nine months of the accounting reference date, although different deadlines can apply to first accounts.
Companies House operates its own late-filing penalty system. A company that misses both deadlines can therefore receive penalties from Companies House and HMRC.
Directors should maintain a compliance calendar showing the Corporation Tax payment date, Company Tax Return filing date, Companies House accounts deadline and confirmation statement date separately.
Corporation Tax for a company’s first year
A new company may have statutory accounts covering more than 12 months from incorporation to its first accounting date. Because a Corporation Tax accounting period cannot exceed 12 months, two Company Tax Returns may be required.
The payment deadlines are calculated separately for each Corporation Tax accounting period. This can produce two tax liabilities with different references and potentially different due dates.
A company may also remain dormant for Corporation Tax until it begins trading. Its accounting period for tax may therefore begin on a different date from its Companies House accounts period.
Our guide to bookkeeping for startups explains why new companies should establish their accounts, bank records and expense categories before the first filing deadlines approach.
Estimating Corporation Tax during the year
Corporation Tax should be monitored from current bookkeeping rather than treated as an unknown cost until the annual accounts are prepared.
A simple estimate can begin with profit to date, adjusted for known items receiving different tax treatment. The applicable Corporation Tax rate and associated-company position must then be considered.
The estimate should not be confused with the final tax computation. Capital allowances, losses, director loan issues, chargeable gains and other adjustments may change the final amount.
Nevertheless, a reasonable estimate helps directors reserve cash and identify whether the company is likely to pay at 19 per cent, receive Marginal Relief or approach the 25 per cent main rate.
Setting aside money for Corporation Tax
A company can transfer an estimated amount into a separate savings account each month. This does not change the accounting liability, but it can reduce the risk of spending money needed for tax.
The amount set aside should be reviewed as profit changes. Reserving 19 per cent of accounting profit may be insufficient where the company falls within Marginal Relief or the main rate.
The director should also remember that money in the bank may already be required for VAT, PAYE, suppliers, loan payments and dividends.
Current bookkeeping and cash-flow reporting provide a better foundation than applying one percentage to the bank balance.
Director salary and dividends
Salary paid to a director can normally reduce taxable company profit where it is incurred for the business and processed correctly through payroll.
Dividends are paid from distributable profits after Corporation Tax and do not reduce the company’s tax liability.
Calling a personal withdrawal a dividend at year end does not make it valid where sufficient distributable reserves did not exist when it was paid.
Our guide to director salary and dividends explains the different payroll, Corporation Tax and company-record requirements.
The company’s current profit, previous losses, estimated Corporation Tax and director loan account should be reviewed before dividends are declared.
Capital purchases and Corporation Tax
Equipment, machinery, computers and commercial vehicles may be capital expenditure rather than ordinary expenses.
Accounting depreciation is generally added back when taxable profits are calculated. Capital allowances can then provide tax relief according to the type of asset and available claims.
The Annual Investment Allowance can provide a full deduction for up to £1 million of qualifying plant and machinery expenditure during a normal 12-month period.
Invoices, finance agreements and fixed asset records should be retained so the accountant can identify qualifying expenditure and disposals.
Losses and Corporation Tax repayments
A company making a trading loss may be able to use it against profits from another period or carry it forward, subject to the applicable rules.
A repayment does not normally arise automatically simply because the bookkeeping shows a loss. The claim must be made through the Company Tax Return or another permitted process.
Where tax has already been paid for an earlier period, a valid loss carry-back claim may create a repayment. The timing and availability depend on the nature of the loss and the company’s circumstances.
The bookkeeper should maintain complete records of income and expenditure, while the accountant or tax adviser determines the available loss relief and submits the claim.
Preparing the bookkeeping for the Company Tax Return
Before the Corporation Tax calculation is prepared, all company bank accounts, credit cards, loans and payment platforms should be reconciled.
Supplier invoices, customer income, payroll, VAT and director transactions should be complete. Personal expenditure should be separated from business costs.
Our guide to bank reconciliation explains how matching the accounting records to bank and payment-provider statements can reveal omitted and duplicated transactions.
Businesses using cloud accounting can also review our guide to preparing for year end in Xero. Reconciled records and organised documents give the accountant a stronger starting point for the annual accounts and tax computation.
Common Corporation Tax mistakes
A common mistake is assuming that the Company Tax Return and Corporation Tax payment share the same deadline. The tax is normally due three months before the return.
Another is calculating Corporation Tax as a fixed percentage of the bank balance or turnover rather than taxable profit.
Companies may also overlook associated companies, incorrectly deduct dividends as expenses or record the complete cost of capital assets without considering capital allowances.
Using an old payment reference can cause HMRC to allocate the tax to the wrong accounting period. Filing Companies House accounts can also be mistaken for filing the Company Tax Return.
Regular bookkeeping and a documented compliance calendar can prevent these administrative errors from becoming interest and penalty problems.
When outsourced bookkeeping helps
A company with current, reconciled records can estimate its Corporation Tax position and provide the accountant with the information needed to complete the return.
Outsourced support becomes more useful where several accounts, payroll, VAT, fixed assets or director transactions need to be maintained consistently.
Bookkeeping Packages Ltd provides bookkeeping services for UK limited companies, including transaction processing, reconciliation and regular financial reporting according to the agreed scope.
Where responsibility for the complete monthly records needs to be transferred, our outsourced bookkeeping service explains how support can be structured.
Bookkeeping does not replace preparation of statutory accounts or specialist Corporation Tax advice. The service should identify clearly which work is performed by the bookkeeper and which remains with the company’s accountant or tax adviser.
To discuss your company records, year end and current bookkeeping position, use the Bookkeeping Packages enquiry form.
About the Author
Stuart Kerr is Managing Director of Bookkeeping Packages Ltd, an outsourced bookkeeping service supporting UK small businesses and accountancy practices. With over 20 years of bookkeeping experience, Stuart specialises in helping businesses maintain reliable financial records and useful management information.
This article is provided for general information only. Stuart Kerr is a professional bookkeeper, not a tax, legal or regulated financial adviser. Nothing in this article constitutes tax, legal or financial advice or representation in an HMRC dispute. Advice specific to your company should be obtained from an appropriately qualified professional.