12 May 2026 · 7 min read · Bruce Thomas
Corporation Tax is charged on a company's taxable profits for an accounting period. Two things surprise most first-time directors: taxable profit is not the same as the profit in the accounts, and the rate depends on the level of profit and on how many associated companies exist.
From accounting profit to taxable profit
- Add back depreciation, then deduct capital allowances instead
- Add back client entertaining and most non-business expenditure
- Add back general provisions that are not specific
- Deduct qualifying pension contributions actually paid in the period
- Deduct any brought-forward losses being used
Rates and marginal relief
There is a small profits rate for lower profits, a main rate for higher profits, and marginal relief in between which produces an effective rate above the main rate on profits within that band.
The profit limits are divided by the number of associated companies. Owning two or three companies can therefore push each of them into a higher effective rate — something worth reviewing before creating another entity.
Deadlines
Payment is due nine months and one day after the end of the accounting period. The CT600 return is due twelve months after. Note that the money is due before the return — a source of confusion every year.
Larger companies pay by quarterly instalments, which begins during the accounting period itself rather than after it.
The director's loan trap
If a director owes the company money at the year end and it is not repaid within nine months and one day, the company pays a s455 charge on the balance. It is refundable once repaid, but the refund is slow and the cash effect immediate.
This is the single most common avoidable charge we see in small companies.
Reducing the liability properly
- Claim all available capital allowances on qualifying assets
- Make employer pension contributions before the period closes
- Review whether R&D relief genuinely applies to development work
- Use loss relief, including carry back where beneficial
- Ensure directors' remuneration is set efficiently for the year
This article is general guidance for business owners in the UK and does not amount to advice for your particular circumstances. Tax rules change and the right answer depends on your figures — please take specific advice before acting.
