Corporation Tax for New Directors

If you have recently set up a limited company, corporation tax is one of the first things you need to understand.

It is often assumed to be complex, but the fundamentals are straightforward once you know how it works. Getting this right early can prevent confusion, missed deadlines, and unexpected tax bills later.

This explains corporation tax in plain English, focusing on what new directors need to know.

What Is Corporation Tax?

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

Profit is not simply the money in your bank account. It is calculated as:

• Income your business earns
• Minus allowable business expenses

The remaining amount is your profit, and this is what corporation tax is based on.

Who Pays Corporation Tax?

If you run a limited company in the UK, your company must pay corporation tax.

This applies whether you are:

• A sole director
• Running a small company
• Operating a larger business

It is the company that pays corporation tax, not you personally.

What Are the Current Corporation Tax Rates?

Corporation tax rates can vary depending on profit levels.

In general:

• Lower profits are taxed at a lower rate
• Higher profits are taxed at a higher rate

There can also be marginal relief between thresholds.

What matters most for new directors is understanding that the rate depends on your company’s profit, not its turnover.

What Counts as an Allowable Expense?

Before calculating corporation tax, your company can deduct allowable expenses.

These are costs that are wholly and exclusively for business purposes.

Common examples include:

• Salaries and wages
• Office costs
• Software and subscriptions
• Professional fees
• Travel for business purposes

Getting expenses right is important. Missing expenses can increase your tax unnecessarily. Including non-allowable costs can create problems with HMRC.

When Do You Pay Corporation Tax?

Corporation tax is not paid at the end of the tax year in the same way as Self Assessment.

Instead, it is based on your company’s accounting period.

Typically:

• Corporation tax must be paid 9 months and 1 day after the end of your accounting period
• Your company tax return must be filed within 12 months of the end of that period

For example, if your year-end is 31 March, your corporation tax payment is usually due by 1 January the following year.

Do You Need to File a Corporation Tax Return?

Yes.

Even if your company makes no profit, you are still required to file a company tax return.

This includes:

• Submitting accounts to HMRC
• Completing a corporation tax return
• Reporting your company’s financial activity

Failure to file on time can result in penalties.

How Is Corporation Tax Different From Personal Tax?

This is one of the most common areas of confusion for new directors.

Corporation tax is paid by the company.

Personal tax is paid by you on income you take from the company, such as:

• Salary
• Dividends

This means there are two layers:

1. The company pays corporation tax on its profits
2. You pay personal tax on what you extract

Understanding this distinction is key to planning your income properly.

Common Mistakes New Directors Make

When starting out, we often see the same issues:

• Assuming corporation tax is based on cash in the bank
• Not setting aside money for tax
• Missing filing or payment deadlines
• Confusing company tax with personal tax
• Taking money from the company without understanding the implications

These are avoidable with a basic structure in place early.

How to Stay on Top of Corporation Tax

You do not need complex systems to stay organised, but you do need consistency.

Simple habits that make a difference:

• Keep your bookkeeping up to date
• Set aside a portion of profit for tax
• Know your year-end date
• Review your numbers regularly
• Ask questions early rather than late

These small actions prevent most problems.

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Corporation tax is a normal part of running a limited company. It is not something to fear, but it does need to be understood.

For new directors, the goal is not to master every detail immediately. It is to build a clear, reliable structure that allows you to stay compliant and make informed decisions as your business grows.

If you would like help understanding your corporation tax position or setting up a system that works from the start, our team is here to help.

We want Your business to succeed