How Do I Pay Corporation Tax for My Company

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We wrote this guide for people running a company who want clear answers on tax, payroll, Companies House filing duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

This is one of the most common questions I hear from limited company directors and it is usually asked a little later than ideal. Corporation Tax is not complicated once you understand the flow but it is very different from personal tax and it catches people out because of timing cash flow and the way profits are calculated.

In this guide I want to walk you through exactly how Corporation Tax works in practice how much you might pay when you need to pay it and how you physically make the payment. I will also explain the mistakes I see most often and how to avoid them based on real world experience rather than theory.

By the end you should feel confident about what is expected of you as a director and how to stay on the right side of HMRC without unnecessary stress.

What Corporation Tax actually is

Corporation Tax is the tax your limited company pays on its taxable profits. It is not based on the money in your bank account and it is not the same as the profit shown in your bookkeeping software unless adjustments are made.

Taxable profits usually include

• Trading profits
• Investment income
• Chargeable gains

From this you deduct allowable expenses capital allowances and reliefs to arrive at the figure that Corporation Tax is charged on.

The tax belongs to the company not to you personally. That distinction is critical.

Who is responsible for paying Corporation Tax

As a director you are legally responsible for ensuring Corporation Tax is calculated correctly reported to HMRC and paid on time. Even if you use an accountant the legal duty remains with you.

HMRC will not chase your accountant if something goes wrong. They will chase the company and by extension the directors.

When your company becomes liable for Corporation Tax

Your company becomes liable for Corporation Tax as soon as it starts trading. Trading does not just mean receiving money. It can include

• Issuing invoices
• Advertising services
• Buying stock
• Signing contracts

Once trading starts you must tell HMRC within three months. This is done through the Government Gateway.

Failing to notify HMRC can lead to penalties even if no tax is ultimately due.

Understanding your accounting period

Corporation Tax is calculated based on your company’s accounting period which usually runs for 12 months. Your first accounting period starts on the day you begin trading not the day the company was formed if those dates differ.

Your accounting period determines

• When accounts must be prepared
• When Corporation Tax is due
• When the Corporation Tax return must be filed

This timing difference is one of the main reasons directors get confused.

How much Corporation Tax will I pay

Corporation Tax rates can change and depend on profit levels. In recent years the UK has moved to a tiered system where

• Companies with lower profits pay a lower rate
• Companies with higher profits pay the main rate
• Marginal relief applies in between

The key point is that the rate applies to taxable profit not turnover.

This is why accurate calculations matter. Paying yourself too much salary or taking dividends without understanding the impact can distort the final tax bill.

Calculating taxable profit properly

Your bookkeeping profit is only the starting point. For tax purposes adjustments are often required.

Common adjustments include

• Depreciation added back
• Capital allowances claimed instead
• Disallowable expenses removed
• Timing differences for accruals

Without these adjustments your Corporation Tax figure will be wrong.

This is an area where I see many DIY returns fail. Software does not know what is allowable unless it is told.

Allowable expenses and why they matter

Corporation Tax is only paid on profits after allowable expenses. This means every legitimate business cost reduces your tax bill.

Typical allowable expenses include

• Office costs
• Software subscriptions
• Professional fees
• Business travel
• Use of home allowances
• Pension contributions

However not everything paid from the company bank account is allowable. Some costs are partially allowable and some are not at all.

Getting this wrong can mean paying more tax than necessary or triggering HMRC queries.

Capital allowances and investment planning

Instead of claiming depreciation companies claim capital allowances on qualifying assets such as equipment vehicles and machinery.

These allowances can significantly reduce taxable profit in the year of purchase.

Timing matters here. Buying assets just before the year end can reduce Corporation Tax but only if structured correctly.

When Corporation Tax is due

This is one of the most important sections to understand.

Corporation Tax is usually due nine months and one day after the end of your accounting period. This is earlier than many directors expect.

For example

• Accounting year end 31 March
• Corporation Tax due 1 January

This means you may need to pay tax before your accounts are even filed.

If you do not plan for this cash flow timing it can cause problems.

When the Corporation Tax return must be filed

The CT600 Corporation Tax return must be filed within 12 months of the end of the accounting period.

This return includes

• Tax computations
• Statutory accounts
• Detailed disclosures

Filing late triggers automatic penalties even if no tax is due.

How to actually pay Corporation Tax

Corporation Tax cannot be paid by cheque. Payment methods include

• Online or telephone banking
• Direct Debit
• Corporate credit card in limited cases

You must use the company’s unique Corporation Tax reference when making payment. This ensures HMRC allocate it correctly.

I always recommend paying directly from the company bank account to avoid confusion.

What happens if you pay late

Late payment leads to interest being charged from the due date. Persistent late payment can also trigger penalties and increased scrutiny.

HMRC systems are automated. There is no grace period.

If you know you cannot pay on time it is better to speak to HMRC early rather than ignore the issue.

What if your company makes a loss

If your company makes a loss you may not pay Corporation Tax for that period. However the loss still needs to be reported.

Losses can often be

• Carried forward
• Carried back
• Used against future profits

Handled correctly losses are valuable. Handled incorrectly they are wasted.

Paying Corporation Tax alongside dividends

One common misunderstanding is assuming you can pay dividends without considering Corporation Tax.

Dividends can only be paid from post tax profits. This means

• Corporation Tax must be calculated first
• Profits after tax determine dividend capacity

Paying dividends without sufficient post tax profit is illegal and creates director loan issues.

The relationship between Corporation Tax and your personal tax

Corporation Tax is separate from your personal tax but the two are connected.

High company profits may lead to

• Higher dividends
• Higher personal tax
• Changes in tax planning strategy

Looking at both together leads to better decisions than treating them separately.

Common mistakes I see directors make

Over the years the same errors appear repeatedly

• Forgetting the nine month payment deadline
• Assuming software calculates tax automatically
• Paying dividends too early
• Mixing personal and company money
• Not setting money aside for tax

Each of these is avoidable with planning.

Should you set money aside monthly

In my view yes. Corporation Tax should not be a surprise.

Setting aside a percentage of profits monthly makes the payment far easier when it is due.

Many directors use a separate savings account for this purpose.

How an accountant helps with Corporation Tax

An accountant does far more than submit a return.

They will

• Calculate tax accurately
• Advise on timing and planning
• Ensure allowances are claimed
• Manage deadlines
• Act as your agent with HM Revenue and Customs
• Reduce the risk of penalties

Most importantly they give you certainty.

Final thoughts from experience

Paying Corporation Tax is not just about transferring money to HMRC. It is about understanding profit timing obligations and planning ahead.

Directors who stay organised rarely struggle with Corporation Tax. Those who treat it as an afterthought often do.

From experience the best approach is to understand the process early build it into your cash flow planning and get advice before decisions are made rather than after.

Once you understand how Corporation Tax fits into the wider picture of running a limited company it becomes manageable rather than intimidating.

You may also find our guidance on What are the penalties for late Corporation Tax payment and What happens if HMRC opens an enquiry into my company helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.