Understanding the corporate tax rate in the United Kingdom is crucial for any business seeking to enter or expand operations in this significant economy.
The corporate tax system in UK features a headline corporation tax rate and a range of reliefs, allowances, incentives, and aid specific to certain industries. Companies must follow the United Kingdom company tax filing processes, adhere to corporate tax payment deadlines in the United Kingdom, and capitalize on opportunities to shift liabilities through corporate tax incentives in the United Kingdom. This guide will take you step-by-step through the intricacies of corporation tax in the United Kingdom, from the basic rate structure to sophisticated tiered treaty planning, so you can optimize your tax position in the UK and comply with all requirements.
What is Corporate tax Rate in the United Kingdom?
The reply to “What is corporate tax rate in the United Kingdom?” is in a tiered form after April 1, 2023:
- Main Rate: 25 percent charge on taxable profits exceeding £250,000.
- Small Profits Rate: 19 percent for profits less than £50,000.
- Marginal Relief Band: For-profits ranging between £50,001 and £250,000, a tapering relief will apply, augmenting the effective rate of 19 percent to 25 percent.
The multi-tiered system helps maintain a lower corporate income tax rate in the UK for smaller businesses, while larger businesses pay a higher rate. All companies need to determine their taxable profits, which is the accounting profit augmented by disallowed items, capital allowances, and deductions.
Breakdown of Corporate Income Tax Components
The headline rate is the corporation tax in the United Kingdom, however, some other features need to be analyzed to gain the full context.
As mentioned, taxable profit consists of several calculations:
Taxable Profit Calculation
- Accounting Profit: As profit before tax (available through GAAP) needs to be captured within Accounting Profit, a portion of profit needs to be captured before tax.
- Adjustments need to be performed on the account:
- Non-deductible expenditures (client entertainment & legal violations) need to be discharged.
- Accounting depreciation ought to be exchanged with capital allowances (Annual Investment Allowance based).
- Capital Allowances vs. Depreciation
- An allowance permits a total withdrawal margin in the first year suggested to be claimed (AIA) on plant & machinery up to £1 million. As stated, to remain in effect until April 1, 2023, on a plan designated as super-dedication.
- Subordinate Structures & Buildings Allowance endorses a 3% allowance norm, unrestricted to qualifying costs of new non-residential structures per annum.
Marginal Relief Calculation
- Formula:
- Marginal Relief=(0.25−0.19)200,000×(250,000−Taxable Profits)\text{Marginal Relief} = \frac{(0.25 – 0.19)}{200{,}000} \times (250{,}000 – \text{Taxable Profits})
- Makes sure that at £50,000 profits, the effective rate is 19 percent, and it peaks at 25 percent by £250,000.
- Loss Utilization
- Carry‑Back: Trading losses may be carried back one year against prior profits, up to two million pounds, to generate immediate relief.
- Carry-Forward: Unlimited carry forward, but offset against only five million pounds plus fifty percent of profits above five million per annum.
- Bank Surcharge
- Banks with profits exceeding 25 million pounds pay an additional 8 percent surcharge on profits from banking, resulting in up to thirty-three percent effective rate for large banking groups.
Corporate Tax Filing Requirements in the United Kingdom
Timely and accurate company tax filing in the United Kingdom is important. Here is a step-by-step guide:
Registration for Corporation Tax
All new companies must apply for registration with HM Revenue and Customs (HMRC) within three months of starting the business (trading, investment, or leasing).
Give the accounting reference date, the company name and address, and give an estimation of taxable profits.
Preparing the Corporation Tax Return (CT600)
- Deadline: CT600 is due twelve months after the termination of the accounting period.
- Contents:
- CT600 form: The statutory form of the direct tax return.
- Statutory Financial Statements: Balance sheet, profit & loss account, notes to the accounts.
- Tax Computations: Further changes from accounting profit, as well as other records of profit to be taxable profit, schedules for capital allowances, R&D claim schedules if applicable, and transfers of group relief.
- Submission:
- By e-mail through HMRC’s Corporation Tax e-filing site or by using a third-party program.
- Submission by post or late submission attracts a fine and should not be done.
Instalment Payment Obligations
- Small/Medium Companies (<1.5 million pounds profit):
- Full liability has to be paid 9 months and 1 day after the accounting period ends.
- Example: year-end December 31, 2023- payment due date is October 1, 2024.
- Large Companies (≥ 1.5 million pounds profit):
- Payments have to be made in quarterly intervals in the following manner:
- 6 months plus 13 days after the period starts.
- 9 months plus 13 days after the period starts.
- 12 months plus 13 days after the period starts.
- 15 months plus 13 days after the period starts.
- Payments have to be made in quarterly intervals in the following manner:
- The final payment (if there is an underpayment of the advance payments) is due 9 months after the end of the accounting year, plus one day.
Penalties and Interest
- Late-Filing Penalties:
- £100 up to three months late.
- 3-6 months late incurs an additional £200 (total £300).
- Every subsequent 6 months, up to 3 years, +£300.
- Late-Payment Interest:
- The due tax from the due payment date until paying off the tax due is the Bank of England’s lowest accessible interest, plus 2.5 percent overtax.
- Failure to Notify:
- The company incurs a penalty of £100 if no letter is sent to HMRC indicating that there are no taxes to be paid, and this is done within three months after the company started operating.
Record-Keeping Obligations
- Invoices, bank statements, payroll records, contracts, and pertinent correspondence must be kept for six years.
- Businesses registered for VAT under “Making Tax Digital” must keep digital VAT records and use HMRC-approved software.
Tax Year and Payment Deadlines in the United Kingdom
The corporate tax payment deadlines in United Kingdom are designed to avoid paying expensive interest and penalties:
- Accounting Period Definition
- This is typically a company’s financial year, such as January 1 – December 31, or any 12 months.
- Subject to HMRC approval, Group members may get an Alternative Annual Accounting Period (AAP) within an 18-month window.
- Payment Timeline for Small/Medium Companies
- Single Payment: Due 9 months and 1 day after the accounting period ends.
- Example: If your period ends on March 31, 2024, Payment would be required on January 1, 2025.
- Instalment Schedule for Large Companies
- If profits are over £1.5 million, installments are due:
- 6 months + 13 days into the period
- 9 months + 13 days
- 12 months + 13 days (just after year-end)
- 15 months + 13 days after the period starts
- If profits are over £1.5 million, installments are due:
- Balancing Payment is due 9 months + 1 day after year-end for all underpaid amounts.
- Extension and Time To Pay
- Time to Pay may be permitted by HMRC for genuine hardship cases such as cash-flow issues.
- Paid applications must be submitted before any deadlines with a corresponding payment plan.
Key Example Calendar (Year-End December 31, 2023)
| Payment Type | Due Date | Comment |
| 1st Instalment (Large Only) | July 13, 2023 | 25 percent of estimated annual liability (1/4) |
| 2nd Instalment (Large Only) | October 13, 2023 | 50 percent of estimated liability (1/4) |
| 3rd Instalment (Large Only) | January 13, 2024 | 75 percent of estimated liability (1/4) |
| 4th Instalment (Large Only) | April 13, 2024 | 100 percent of estimated liability (1/4) |
| Small/Med Full Payment | October 1, 2024 | Full balance for companies < £1.5 million profits |
| Balancing Payment (Large) | October 1, 2024 | Remaining tax after instalments |
Staying on top of these tax payment deadlines ensures minimal penalty risks and smoother cash-flow forecasting.
Withholding Taxes and Other Business Taxes in the United Kingdom
Header corporate tax rate in the United Kingdom, businesses need to account for various withholding taxes and other business taxes in the United Kingdom:
Withholding Tax Regime
- Dividends
- No UK withholding tax on dividends paid to shareholders (UK or non-UK).
- Facilitates the repatriation of profits by foreign parent companies.
- Interest
- There is no general UK tax on interest paid by UK entities to UK or non-resident lenders.
- Violation: ‘Concealed disbursements’ made under payment relationships might capture 20% withholding tax without an exemption being present.
- Payment of interest exceeding £100,000 to ‘associated persons’ is subject to a 20% withholding tax unless a waiver is obtained.
- Royalties
- Royalties granted to non-resident taxpayers, in the absence of a permanent establishment in the UK, are not subject to UK withholding tax.
- These royalties are most commonly found in licensing agreements, where these royalties would be paid without any withholding in advance.
Value Added Tax (VAT)
- Standard Rate: VAT at the rate of 20% is charged on the majority of taxable goods and services supplied.
- Reduced Rate: Applies to certain goods and services, e.g., materials for saving energy and children’s car seats, or rental of approved educational materials.
- Zero Rate: Food, books, and most children’s clothing, exports, and children’s clothes.
- Registration Threshold: Compulsory registration arises when the turnover from taxable supplies in the jurisdiction exceeds £85,000 in any 12 months.
- Filing Frequency: Returns are typically made every three months, however, small businesses have the option of an annual accounting scheme, and digital record-keeping is required under the ‘Making Tax Digital’ initiative.
National Insurance Contributions (NICs)
- Employer NICs:
- 13.8 percent of the employee’s earnings above the secondary threshold (£9100 per annum for 2023/24).
- Employee NICs:
- Class 1 contributions at 12 percent on earnings between the primary threshold (£12,570) and to upper earnings limit (£50,270), then 2 percent above that.
- Despite being paid by employees, NICs consider labor costs that affect total labor costs and should be planned into budgeted wages.
Capital Gains Tax (CGT) for Companies
- Taxed at Corporation Tax Rates: Gains on disposals of assets by UK companies are taxed at 19 or 25 percent, depending on profit bands.
- Substantial Shareholding Exemption (SSE):
- 100 percent exemption on the gains from the disposal of qualifying shareholdings (`≥ 10 percent held for at least 12 months and meets the trading requirement ‘).
Along with the core of the corporation tax, other business taxes United Kingdom and withholding taxes take total effective tax burdens and cash-flow needs.
International Tax Treaties and Double Taxation Avoidance
The tax treaties are called DTAs, which the UK has many of, and they make sure that taxes are not collected on the same income multiple times. Important aspects are as follows:
Treaty Network Overview
- Scope: More than 140 operational treaties with countries like the USA, Germany, France, China, and India.
- Income Categories: Withholding taxes and reduced rates provided in DTAs for dividends, interest, royalties, and capital gains are listed.
Withholding Tax Reductions
| Income Type | UK Statutory Withholding | Typical Treaty Rate | Conditions/Notes |
| Dividends | None | 0–15 percent | Often 0 percent where ≥ 10 percent shareholding. |
| Interest | None | 0–10 percent | Commonly 0 percent if beneficial owner is a bank or meets treaty criteria. |
| Royalties | None | 0–10 percent | 0 percent under EU Interest & Royalties Directive (while applicable), otherwise based on treaty. |
Claiming Repeals:
- A certificate of residence should be acquired from HMRC, so that HMRC verifies he/she is a UK tax resident, petitioning for some other benefits.
- The certificate and the required tax forms are to be submitted to enforce the cap on retentions.
Transfer Pricing Requirements
- London follows guidelines related to transfer pricing set by the OECD, along with, head office and arms of a foreign-controlled company in the jurisdiction.
- Documentation Obligations:
- Local File: Country-level documentation on related-party transactions, comparability studies, and functional profiles.
- Fines for insufficient or delayed documentation may amount to 10 percent of the income tax due to the underpayment resulting from the transfer pricing.
Controlled Foreign Company (CFC) Rules
- Aim: To stop the shifting of profits into low-tax jurisdictions by deeming certain passive or “artificial” income from subsidiaries to be attributed to the UK parent.
- Coverage: It is applicable only if the UK parent is the owner of more than 50% of the votes, share capital, or voting power of a foreign entity that is low taxed.
- Low Tax Condition: Profits are taxed at a level lower than 75 percent of the UK rate, which means under 18.75 percent.
- Exemptions:
- Excluded activities are like genuine industrial or commercial activities undertaken locally.
- De minimis thresholds for foreign subsidiaries with low profits or revenues.
UK Participation Exemptions
- Substantial Shareholding Exemption (SSE):
- 100 percent exemption on capital gains arising from the disposal of a “substantial shareholding” when ≥ 10 percent stake held for 12 months in a trading company or trading group.
- Dividend Exemption:
- Most dividends received from UK companies that are beneficiaries of foreign-held subsidiaries are exempted, provided the UK parent company holds more than 10 percent for more than 12 months within 6 years.
- Permits repatriation at no additional UK tax if requirements under the treaty are fulfilled.
With the aid of the UK’s international tax treaties, their avoidance of double taxation, and a few other relevant factors, multinational corporations are able to streamline the efficiency of their cross-border operations by managing the administrative burden of withholding taxes, CFC restrictions, and avoiding punitive charges.
How Commenda Supports Corporate Tax Compliance in the United Kingdom
The corporate tax compliance services are often very intricate- filing CT600 returns and claiming R&D credits are quite complex shapes within a very resource-intensive puzzle. This is where Commenda aids through their specialized services aimed at assisting UK businesses with tax compliance:
Registration & Structuring Advisory
- Guides newcomers through the HMRC registration, where they assist with the optimal accounting reference date selection, and tax benefits, defining legal form, whether as a limited company, LLP, or branch.
Tax Computation & CT600 Preparation
- Detailed tax computations that involve reconciling the accounting profit to the taxable profit through the application of capital allowances and eligible relief calculation are done in-house.
- CT600 and supporting schedules (R&D claims, group relief transfers, et cetera) are submitted and completed through the HMRC electronic filing system, along with the CT600.
Instalment and Payment Management
- Supervises profit thresholds to track large company status and determine the necessity of quarterly installment payments to some.
- Guides revise estimated installments mid-year within the fiscal year to adjust for overpayment, underpayment, and interest charges.
Transfer Pricing Documentation & Advisory
- Completes benchmarking exercises, functional studies, and prepares master/local files as per OECD requirements.
- Provides advice on CFC risks and offers structural solutions to mitigate unintended CFC charges.
Incentive Identification & Claim Support
- Determines eligible R&D projects to maximize SME R&D relief or RDEC claims.
- Oversees Patent Box election and the calculations to obtain a 10 percent rate on qualifying patents.
- Assists in the planning of capital expenditures to maximize deductions for qualified expenditures and deductions under Structures & Buildings Allowance.
- Aids in settling the claims for relief concerning the film, video games, and theatrical productions for creative firms.
Shifting the burden of corporate tax compliance services on tax consultants sustains a company’s tax competitive advantage within the UK. Businesses can focus on growth and leave the dynastic minutiae of legislation, amending their UK tax position comfortably as the business’s UK tax specialists guide them through the steps necessary to achieve compliance.
Get expert help with tax compliance in the United Kingdom by contacting one of our United Kingdom specialists today.
