Corporation tax

BLP.15 — Corporation Tax

What it is. Corporation tax (CT) is charged on a company's taxable total profits (TTP) for an accounting period: income profits and chargeable gains within the CT charge. A company does not pay capital gains tax on its gains; corporation tax is charged on them instead (TCGA 1992 s.1(2)). The residence and territorial rules below determine its scope. Governing statute: CTA 2009 (charge/income), CTA 2010 (rates/reliefs), TCGA 1992 (gains computation). The company is liable, files a CT600, and self-assesses.

Which companies and profits?

• Residence: UK incorporation makes a company UK resident under CTA 2009 s.14. A company incorporated abroad is also UK resident if its central management and control is actually exercised in the UK; the inquiry is factual, not decided solely by registration or formal board-meeting location (De Beers Consolidated Mines Ltd v Howe [1906] AC 455, discussed in HMRC v Development Securities plc [2020] EWCA Civ 1705 at [5]-[10]). Section 18 overrides domestic residence rules where double-taxation arrangements treat the company as resident outside the UK and non-UK resident.
• UK residents: the income charge covers profits wherever arising (CTA 2009 s.5(1)), and the gains charge covers disposals of assets wherever situated (TCGA 1992 s.2B(1)). Both are subject to statutory exceptions, including the elective foreign-permanent-establishment exemption in CTA 2009 Part 2 Chapter 3A (available only if the company makes an election: s.18A(1)).
• Non-UK residents, income: a non-UK resident company is within the CT charge on income only if it carries on a trade of dealing in or developing UK land, carries on a trade in the UK through a UK permanent establishment, carries on a UK property business, or has other UK property income as defined in s.5(6) (CTA 2009 s.5(2)). The charge is limited to the profits of that route: for a permanent establishment, the profits attributable to it (s.5(3)); for the property routes, the property profits and the loan-relationship and derivative-contract profits connected with them (s.5(3A)-(3B)). For a trade of dealing in or developing UK land, it covers all profits of that trade wherever arising (s.5(2A)). Non-residence is therefore neither a general exemption nor a general charge.
• Non-UK residents, gains: the separate rules cover gains on UK-situated assets that accrue while the company has a UK permanent establishment and are attributable to it, and gains on interests in UK land or on assets deriving at least 75% of their value from UK land where the company has a substantial indirect interest in that land (TCGA 1992 s.2B(3)-(6)). The detailed indirect-interest conditions are in Schedule 1A; not every disposal of shares in a company holding UK land is chargeable under that route.
• Income tax is excluded within the statutory scope: CTA 2009 s.3 excludes the income-tax charge for a UK-resident company, and for a non-resident company on income chargeable to CT or which would be chargeable but for an exemption or the rules under which it is not regarded as having a permanent establishment (CTA 2010 ss.1142-1144). The exclusion does not apply to income accruing to the company in a fiduciary or representative capacity (s.3(2)); the company is not chargeable to CT on such profits except as respects its own beneficial interest (s.6(1)), but that CT exclusion does not apply to profits arising in the company's winding up (s.6(2)). Do not turn the ordinary CT rule into a statement that every company is exempt from income tax in every capacity.

Accounting periods are not necessarily the accounts period

• Under the ordinary rules, a CT accounting period begins when a company comes within the charge, or immediately after the previous period ends while the company remains within the charge. A UK-resident company is treated as coming within the charge when it starts business if it would not otherwise be within the charge (CTA 2009 s.9).
• An ordinary accounting period ends at the first statutory event, including twelve months from its start, the company's accounting date, starting or ceasing to trade, a change of UK residence, leaving the CT charge, or entering or leaving administration (s.10). It therefore cannot simply follow an eighteen-month set of accounts as one eighteen-month CT period. If no earlier ending event intervenes, that accounts period requires a twelve-month CT period followed by a six-month one. Winding-up and other special statutory rules must be checked separately; ss.9-10 expressly preserve them.

Rates and marginal relief: financial year 2026

• For ordinary non-ring-fence profits, the main rate is 25%, the small-profits rate is 19%, and the marginal-relief fraction is 3/200 (Finance Act 2025 ss.13-14).
• The small-profits rate requires a UK-resident company which is not a close investment-holding company, with augmented profits no greater than the lower limit. Marginal relief has the same residence/investment-holding restrictions and applies where augmented profits exceed the lower limit but do not exceed the upper limit (CTA 2010 ss.18A-18B). Do not give 19% automatically to every company with low taxable profits. A commercial trading or qualifying commercial property-letting purpose can keep a close company outside the investment-holding exclusion; not every close company is excluded (s.18N).
• For a twelve-month accounting period with no associated companies, the limits are £50,000 and £250,000. Apply the period and associated-company adjustments below before choosing the rate.
• Augmented profits (A) are taxable total profits plus qualifying exempt distributions received which are not excluded under s.18L. Specified subsidiary/group and quasi-subsidiary distributions are excluded. An exempt dividend can therefore affect the rate without itself becoming taxable income; do not add every exempt receipt indiscriminately.
• In the marginal band, charge 25% of taxable total profits (N), less (3/200) x (U - A) x N/A, where U is the adjusted upper limit. Do not use taxable profits for A when relevant exempt distributions make them different.
• Example: an eligible company has a twelve-month period, no associates, taxable total profits of £100,000 and no relevant exempt distributions. Relief is 3/200 x (£250,000 - £100,000) x 1 = £2,250, so CT is £22,750. The 26.5% shorthand is a marginal rate in the simple case where A=N, not a flat effective rate on all profits and not a substitute for the formula.
• The £50,000/£250,000 limits are divided by one plus the number of associated companies (CTA 2010 s.18D(3)), ignoring an associate that carried on no trade or business at any time in the period, or in the part of it when it was associated (s.18E(3)). A holding company is treated as carrying on no business if, throughout the period, it carries on no trade, has one or more 51% subsidiaries and meets the strict 'passive company' conditions (broadly: its only assets are shares in those subsidiaries, its only income is exempt dividends that it pays out in full, and it has no chargeable gains or management expenses) (s.18F). The limits are proportionately reduced for periods under 12 months (s.18D(4)).

Calculating TTP

1. Income profits include trading profits, property-business profits and non-trading loan-relationship profits (CTA 2009 ss.2, 35, 209 and 299). Trading profits are calculated after deductible expenses (wholly and exclusively for the trade) and qualifying capital allowances. Items of a capital nature are not deductible unless an express statutory provision allows them (s.53): add back capital expenditure and depreciation charged in the accounts, then deduct any available capital allowances. Keep the AIA and the s.45S first-year allowances apart:
   • Annual Investment Allowance (AIA) gives a 100% deduction for qualifying plant and machinery, new or second-hand, subject to the statutory exclusions, including cars and expenditure in the period when the qualifying activity is permanently discontinued (CAA 2001 ss.38A-38B). The normal maximum is £1 million for a one-year chargeable period, proportionately adjusted for a longer or shorter period. The claimant must own the plant or machinery at some time in the period and may claim for all or part of eligible expenditure (s.51A).
   • Do not multiply the AIA by the number of activities or group members. One company has one allowance across its qualifying activities. Companies within the statutory parent-undertaking group share one allowance, with allocation between them; certain groups or other companies under common control must also share where they meet the statutory relatedness test (ss.51B-51G). Common control alone is not enough: companies are related if the shared premises condition or the similar activities condition (more than 50% of each company's turnover from qualifying activities within the same first-level NACE classification) is met, and relatedness extends through linked companies; groups can be related through member companies and through linked groups (s.51G(1)-(7)). These are AIA rules, not the separate corporation-tax loss-group definition.
   • Full expensing and the special-rate first-year allowance are separate from AIA. For expenditure incurred on or after 1 April 2023 by a company within the charge to corporation tax on unused, not second-hand plant or machinery, s.45S can give 100% for expenditure which is not special rate or 50% for special-rate expenditure (s.52(3)), without the AIA monetary cap. Check disqualifying arrangements under s.45T and the general exclusions in s.46. Cars are excluded from s.45S relief; leasing is generally excluded, but there is an express exception for an excluded lease of background plant or machinery for a building (s.46(4A)). Do not transfer the separate s.45U leasing rules below to full expensing.
   • Otherwise, writing-down allowances: 14% main pool (chargeable periods beginning on/after 1 April 2026 for companies, 6 April 2026 for income tax; hybrid rate for straddling periods) / 6% special rate pool. A 40% first-year allowance covers expenditure incurred on or after 1 January 2026 that is not special rate expenditure, on plant that is unused and not second-hand (CAA 2001 ss.45U, 52(3)), subject to s.45V (anti-avoidance) and the general exclusions in s.46 (e.g. cars). It is not limited to companies (contrast s.45S). Plant bought for leasing can qualify if s.46(4B) is met (broadly, the lessee uses it to earn income within the charge to UK tax).
2. Chargeable gains: deduct allowable costs and any available indexation allowance frozen at December 2017, then account for allowable capital losses under the company gains rules. Under the ordinary capital-loss rules, capital losses do not reduce trading income; check statutory reliefs such as qualifying share-loss relief separately. Companies may have indexation allowance frozen at December 2017 (TCGA 1992 s.53(1B)); it cannot create or increase a loss (s.53(2A)).
3. Total profits are not necessarily taxable total profits. Aggregate income profits and the amount of chargeable gains, then deduct amounts eligible for relief against total profits to reach TTP (CTA 2010 s.4). Check the loss-relief conditions, claims and ordering rather than treating every loss as freely available.
4. Deduct qualifying charitable donations for the period after other reliefs except group relief and group relief for carried-forward losses. The deduction cannot reduce TTP below nil; it does not create a trading loss (s.189). Apply the relevant CT rate or marginal-relief calculation to the resulting TTP, not to turnover or profits before these deductions.

Loss relief: route, claim and restrictions

• Current-period and ordinary carry-back relief: a company may claim relief for a trade loss (not available if, in the loss-making period, it carries on the trade wholly outside the UK: s.37(5)) against total profits of the loss-making period and, if the claim so requires, periods falling wholly or partly in the preceding 12 months. The same-period profits are used first, then later periods before earlier ones. The company must have carried on the trade in the earlier period, not wholly outside the UK. The normal claim limit is two years after the end of the loss-making period, subject to HMRC allowing longer (CTA 2010 s.37).
• Terminal trade losses: when the company ceases the trade, s.39 extends the s.37 carry-back window from twelve months to three years ending immediately before the loss-making accounting period begins, not simply three years before cessation. The terminal loss includes the whole trade loss of a period beginning within the final twelve months of the trade and the time-apportioned part of a loss of a period ending, but not beginning, within those twelve months. Use the loss-making period first and then later periods before earlier ones; where an earlier profits period only partly overlaps the extended window, s.38 limits the deduction to the overlapping proportion of that period's total profits. The ordinary s.37 claim deadline and trade conditions still apply. Section 41 disapplies s.39 where, on the cessation, any of the trade's activities pass to persons not within the CT charge and the cessation is part of a scheme one of whose main purposes is to secure the terminal-loss extension. Do not substitute the separate terminal rules for carried-forward losses for this s.39 route.
• Carry-forward is not one unrestricted total-profits relief. Trade losses of accounting periods beginning before 1 April 2017 are generally restricted to subsequent profits of the same continuing trade (s.45). Eligible losses of accounting periods beginning on or after 1 April 2017 may be claimed against later total profits under s.45A, but the continuing-trade and other statutory conditions must be met; s.45B provides a trade-profits route in specified cases where the total-profits route is unavailable. Do not assume every carried-forward loss can offset every kind of income or gain.
• Carried-forward loss restriction: the ordinary maximum combines the available deductions allowance with 50% of statutory relevant profits (broadly, qualifying profits less the applicable allowance), subject to the statutory computation and other deductions. The usual annual allowance is £5 million, shared across a group rather than available afresh to each member, with short-period and allocation rules (ss.269ZD, 269ZDA, 269ZFA, 269ZR-269ZW). This is not a statement that every loss claim, including current-period relief, is capped in the same way.
• Capital losses normally relieve chargeable gains, not income. This is not absolute: statutory share-loss relief can permit an investment company to claim relief against income for a qualifying loss on shares it subscribed for in a qualifying trading company, subject to the company, share, disposal and claim conditions in CTA 2010 Part 4 Chapter 5 (from s.68). Not every loss on shares qualifies, and the relief is not available to a company that is not an investment company. Brought-forward company capital losses have a separate 50% restriction using the amount of the shared deductions allowance allocated to gains; they do not receive another independent £5 million allowance (s.269ZBA). Current-period capital losses and brought-forward losses must be distinguished.

Current-period group relief: the group condition

• A claimant company may claim all or part of a surrendering company's amounts that are surrenderable under Part 5 Chapter 2. The surrenderer must consent, the claim and surrender periods must overlap, and a qualifying group or consortium condition must be met at a time during that overlap (CTA 2010 s.130). Membership alone is not a completed claim or an entitlement to surrender every loss.
• For the ordinary group condition, both companies must be UK related: UK resident, or non-UK resident within the charge to corporation tax (ss.131, 134). They are in the same group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company (s.152).
• The 75% test is not share capital alone. It requires direct or indirect beneficial ownership of at least 75% of ordinary share capital, plus beneficial entitlement to at least 75% of any profits available for distribution to the subsidiary's equity holders and at least 75% of any assets available for distribution to those equity holders on a winding up (s.151(4)). These are two separate conditions, measured under the equity-holder rules in Part 5 Chapter 6 (from s.157), not company-law distributable profits. Shares that a company owns directly, where a profit on their sale would be a trading receipt of that company, are treated as not owned for this test (s.151(3)). Ownership means beneficial ownership, direct or indirect (ss.1154(3), (6), 1155-1157). Do not substitute the associated-company or AIA-group tests.
• Check the separate surrenderable-amount and overlapping-period limits before computing relief. Consortium claims and group relief for carried-forward losses have their own conditions; the current-period group condition above does not settle those routes.

Paying and filing: separate deadlines

• Ordinary payment is not the return deadline. The ordinary CT due date is nine months and one day after the accounting period ends (TMA 1970 s.59D). The instalment rules below can bring payment forward; they do not depend on whether the company qualifies for the 19% small-profits rate.
• Instalment classification uses augmented profits, not turnover or trading profit alone: taxable total profits plus the qualifying exempt distributions not excluded by CTA 2010 ss.18L-18M. For an ordinary company with a twelve-month period and no associated companies, it is large if those profits exceed £1.5 million but do not exceed £20 million, and very large if they exceed £20 million, subject to the exceptions below (SI 1998/3175, regs.2-3 as amended). Special bank-levy, ring-fence and energy-levy rules, including the different profits test for companies that are, or belong to a group that is, an electricity-generating undertaking, are outside this ordinary-company outline (Finance (No. 2) Act 2023 s.306).
• Adjust the thresholds. Divide the £1.5 million, £10 million and £20 million thresholds by one plus the number of associated companies. For this purpose the number is determined at the end of the immediately preceding accounting period; if there is no such period ending on the day before this period starts, use the number at the start of this period (reg.3(6)-(8)). Apply the associated-company rules in CTA 2010 ss.18E-18J, not the former 51%-group test (FA 2021 Sch.1 para.13, applying to periods beginning on or after 1 April 2023). Proportionately reduce the thresholds for periods shorter than twelve months, except where the disposal-gain-only rule below applies (reg.3(10)-(11)).
• Liability exception. An ordinary company is neither large nor very large for these purposes if its total tax liability for the period does not exceed £10,000, proportionately reduced for a shorter period unless reg.3(11) applies. This liability limit is not divided by the number of associates (reg.3(4), (10)).
• First-year exception for large companies. The large-company rules do not apply where augmented profits do not exceed the adjusted £10 million limit and either the company did not exist or had no accounting period during part of the preceding twelve months, or, for an accounting period falling within or ending in those twelve months, the company was neither a large company (disregarding this exception) nor a very large company. This is not a fresh exemption in every year and does not exempt a very large company (reg.3(5)).
• Large-company instalments. For a twelve-month period, ordinary CT is payable in four equal instalments: the first six months and thirteen days after the period starts, then every three months, with the last three months and fourteen days after the period ends (reg.5). For a period from 1 January to 31 December 2026, the dates are 14 July and 14 October 2026, then 14 January and 14 April 2027. Shorter periods use the statutory dates and amounts; do not assume four equal instalments.
• Very-large-company instalments come earlier. For a twelve-month period, the first is two months and thirteen days after the period starts and the next three are at three-month intervals (regs.5AZA-5AZB). For 1 January to 31 December 2026, four equal ordinary-CT instalments fall on 14 March, 14 June, 14 September and 14 December 2026. Short periods have separate final/only-instalment rules. Bank levy and ring-fence amounts have different rules (regs.3A, 5AZC, 5A).
• Disposal-gain-only exception. If a company is chargeable to CT for the period only because of a chargeable gain on disposing of an asset, and would otherwise be very large, it is treated as large instead. Where this rule applies, the short-period reductions in reg.3(10) do not apply (reg.3(11), inserted by FA 2020 s.26 for periods beginning on or after 11 March 2020).
• Return filing. The filing date is the latest of: twelve months from the end of the accounting period for which the return is made; twelve months from the end of the relevant period of account if that period is no longer than eighteen months; thirty months from the beginning of the relevant period of account if it is longer than eighteen months; and three months after service of the notice requiring the return. The relevant period of account is the one containing the accounting period's final day (FA 1998 Sch.18 para.14). Thus twelve months after the end of the accounting period is the usual shorthand, not an invariable rule.

Common traps to nail

• Don't apply income tax or CGT rates to a company's own profits within the CT charge; CT taxes its gains too (TCGA 1992 s.1(2)).
• Associated companies reduce the £50k/£250k thresholds — a single shareholder's group can lose the small-profits rate.
• AIA (£1m cap) ≠ full expensing (no cap) — don't merge them; full expensing is new main-rate plant only.
• Dividends paid are NOT deductible (paid from post-tax profit); dividends received are usually exempt.
• Indexation: companies yes (to Dec 2017), individuals no.
• Payment timing: the ordinary corporation-tax due date is 9 months + 1 day after the end of the accounting period (TMA 1970 s.59D(1)). This is not confined to companies paying the small profits rate. Separate instalment rules can require earlier payments; do not use eligibility for the 19% small profits rate to decide whether those rules apply.
• VAT (£90,000 registration threshold) is separate from CT — don't conflate.

Anti-avoidance: the general anti-abuse rule

• The GAAR (FA 2013 Part 5) applies to several taxes, including income tax, capital gains tax and corporation tax (s.206(3)); VAT is not on that list. Arrangements are tax arrangements if, having regard to all the circumstances, it would be reasonable to conclude that obtaining a tax advantage was the main purpose, or one of the main purposes, of the arrangements (s.207(1)). That alone does not make them abusive.
• The separate abuse test asks whether entering into or carrying out the arrangements cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances (s.207(2)). These include whether the results are consistent with the provisions' principles and policy objectives, whether the means involve contrived or abnormal steps, and whether the arrangements are intended to exploit shortcomings in the provisions. Where the arrangements form part of wider arrangements, regard must also be had to those (s.207(3)). A tax saving does not by itself satisfy this test; accordance with established practice that HMRC had accepted may indicate that arrangements are not abusive (s.207(5)).
• Abusive tax advantages are counteracted by just and reasonable adjustments, subject to the statutory procedure (s.209). In court or tribunal proceedings, HMRC must show both that the arrangements are abusive and that its adjustments are just and reasonable; the court or tribunal must take into account HMRC's GAAR guidance approved by the GAAR Advisory Panel and any relevant Panel opinion (s.211). Specific anti-avoidance provisions must also be checked for the particular transaction; this outline does not replace their conditions.

Close-company loans and benefits: separate company charges

• Identify the statutory persons. Broadly, a close company is controlled by five or fewer participators, or by participators who are directors; there is also a winding-up entitlement test, and statutory exceptions (CTA 2010 s.439). A participator is not just a shareholder: the definition includes statutory loan creditors and specified rights over income or assets (s.454). Associates have a specific statutory definition, including partners, specified relatives and certain settlement/estate connections (s.448); do not assume every relative or connected business falls within it.
• The loan charge is not the ordinary CT rate. Where a close-company loan or advance falls within s.455 and no exception applies, the company owes tax at the dividend upper rate for the tax year of the loan. For a loan made in 2026/27, that is 35.75%, not 19% or 25% (s.455(2); ITA 2007 s.8(2); FA 2026 s.4). The charge is due nine months and one day after the end of the accounting period in which the loan was made (s.455(3)). The scope includes loans to individual participators/associates and specified trustee and partnership cases (s.455(1), (6)); the loan is not simply added to the company's trading profits.
• Check exceptions, not the label 'director's loan'. Section 456 excludes ordinary-course loans where the company's business includes money lending. A goods/services debt incurred in the ordinary course of trade is outside the deemed-loan rule only if the credit does not exceed six months and is not longer than normally given to customers. There is also a qualifying charitable-trust exception where the advance is applied only to the trust's charitable purposes.
• Employee/director exception: all conditions matter. The loan and the aggregate outstanding loans from the close company and its associated companies must not exceed £15,000; the borrower must work full-time for the company or an associated company and have no material interest in any of them (s.456(3)-(6)). 'Material interest' includes the statutory more-than-5% share/control or asset-entitlement tests, taking associates into account (s.457). If a material interest is acquired while an exempt loan remains outstanding, s.456(7) treats the outstanding amount as a new loan at that time.
• Repayment, release or write-off: company relief is a separate step. Section 458 allows proportionate relief on a claim made within four years from the end of the financial year of the repayment, release or write-off. If the event occurs on or after the original tax due date, relief cannot be given before the end of nine months from the end of the accounting period of that event. Company relief does not establish that the borrower has no separate income-tax consequences.
• Recycled repayments need the current rules. Section 464ZA contains a 30-day matching rule where qualifying repayments and available replacement loans to the same person or an associate of that person each total at least £5,000, with the replacement loans in a subsequent accounting period to the original loans; replacement amounts repaid within that 30-day period are excluded. A separate arrangements rule applies where at least £15,000 is owed immediately before repayment and replacement-loan arrangements then exist with available replacement amounts, to the person or an associate, of at least £5,000. Matching treats the qualifying repayment, to the extent matched, as repaying the replacement loans, not the original debt. Available/qualifying amounts prevent repeated matching; the income-tax-charged repayment exception must also be checked (s.464ZA(4)-(6), s.464ZB). Do not teach a blanket rule that any later borrowing cancels repayment relief.
• Other benefits and indirect arrangements are not automatic duplicates. Section 464A separately charges a close company that is a party to arrangements conferring a benefit (directly or indirectly) on an individual participator or associate where the main purpose, or one of the main purposes, of the arrangements is to avoid/reduce the company's s.455 charge or obtain relief from it, or to obtain an income-tax advantage for the individual (s.464A(6)-(7)). It excludes the benefit to the extent it gives rise to a s.455 charge or an income-tax charge on the individual. Indirect loans and controlled-company loans have their own rules and exceptions (ss.459-461). The old s.464B return-payment relief was repealed for payments on or after 30 October 2024; FA 2025 s.81 also replaced the old Chapter 3B repayment machinery (ss.464C-464D) with ss.464ZA-464ZB from that date.

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