Corporation tax is one of those things every limited company has to deal with, but it’s often less complicated than it first sounds.

At its core, it’s simply a tax on your company’s profits. Once you understand what counts as profit and what you need to report, it becomes much easier to manage.

Here’s how it works and what to keep in mind.

What is corporation tax?

Corporation tax is the tax your limited company pays on its profits.

Profit is what’s left after you’ve taken your business income and subtracted your allowable costs. These costs can include things like salaries, rent, equipment and other day-to-day expenses.

If your business makes a profit, you’ll usually need to pay corporation tax on it.

Sole traders don’t pay corporation tax. They pay income tax instead. So this only applies if you run a limited company.

How much corporation tax do you pay?

The amount you pay depends on how much profit your business makes.

In the UK, there are different rates depending on your profit level. Smaller profits are taxed at a lower rate, while higher profits are taxed at a higher rate.

The exact rate can change over time, so it’s always worth checking the latest figures. But the key point is that the more profit your company makes, the more tax you’ll pay.

When do you need to pay it?

Corporation tax is based on your company’s accounting period, which is usually your financial year.

You’ll need to:

• Keep records of your income and expenses
• Work out your profit for the period
• Submit a company tax return to HMRC
• Pay any corporation tax due

The payment deadline is usually 9 months and 1 day after the end of your accounting period.

Your tax return is due later, but it’s a good idea to prepare everything well before the payment deadline so you’re not rushing.

What expenses can you claim?

One of the most important parts of managing corporation tax is understanding what you can claim as a business expense.

Allowable expenses reduce your profit, which means you only pay tax on what’s left.

Common examples include:

• Staff salaries and wages
• Office rent and utilities
• Equipment and tools
• Professional fees, like accounting
• Business travel

The general rule is simple. If the cost is wholly and exclusively for business use, it’s usually allowable.

Keeping things simple

Corporation tax becomes much easier when your records are clear and up to date.

That means:

• Keeping track of income and expenses as you go
• Storing receipts and invoices properly
• Using accounting software or working with an accountant

Leaving everything until the end of the year can make things feel more stressful than they need to be.

Planning ahead

It helps to think about corporation tax throughout the year, not just when it’s due.

Setting money aside regularly means you’re not caught out by a large bill later. It also gives you a clearer picture of how much profit your business is actually making.

If your profits are growing, it may also be worth getting advice on how to manage tax efficiently.

The bottom line

Corporation tax is simply a tax on your company’s profits.

Once you understand how profit is calculated and what you can claim as expenses, it becomes much more manageable. With good records and a bit of planning, it’s something you can stay on top of without too much hassle.