Corporation tax

BLP.15 — Corporation Tax

What it is. Corporation tax (CT) is charged on a UK company's taxable total profits (TTP) for an accounting period — its income profits plus chargeable gains. Companies do not pay income tax or CGT; they pay CT on both streams. Governing statute: CTA 2009 (charge/income), CTA 2010 (rates/reliefs), TCGA 1992 (gains computation). The company is liable, files a CT600, and self-assesses.

The rates (FY2026/27)

• 19% small-profits rate — profits ≤ £50,000.
• 25% main rate — profits > £250,000.
• Marginal relief smooths the band £50,000–£250,000 (effective marginal rate ~26.5%).
• Thresholds are divided by the number of associated companies and time-apportioned for short periods. Watch this trap.

Calculating TTP

1. Income profits = trading receipts less deductible expenses (wholly & exclusively for trade) and capital allowances. Two distinct 100% reliefs to keep apart:
   • Annual Investment Allowance (AIA) — 100% deduction on qualifying plant & machinery (new or second-hand), capped at £1m per year.
   • Full expensing — a separate 100% first-year allowance on new/unused main-rate plant & machinery, with no monetary cap (permanent from 1 Apr 2023; 50% FYA for special-rate pool assets).
   • Otherwise, writing-down allowances: 18% (main pool) / 6% (special rate pool).
2. Chargeable gains = proceeds − allowable costs − indexation allowance frozen at Dec 2017 (companies still get indexation up to that date; individuals get none).
3. Add income profits + gains = TTP; apply the rate.

Loss relief (key distinctions)

• Trading losses: set against total profits of the same period, then carry back 12 months, or carry forward against future total profits (post-1 Apr 2017 losses are flexible but subject to the £5m + 50% restriction).
• Capital losses: relievable only against chargeable gains, never income.

Common traps to nail

• Don't apply income tax/CGT rates to a company — only CT applies, and it taxes gains too.
• 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: small companies pay 9 months + 1 day after period end; large companies pay by quarterly instalments.
• VAT (£90,000 registration threshold) is separate from CT — don't conflate.