Corporate income tax (CIT) – rates

From 1 April 2025, UK businesses will be subject to Corporation Tax at these rates:

• Standard rate (for profits over £250,000): 25%
• Lower rate (for profits up to £50,000): 19%
• Marginal relief is available for profits between £50,000 and £250,000. This means the rate increases gradually from 19% to 25% as profits rise within this band.

If the company’s accounting period is less than a year, or if it has related companies, the profit thresholds are reduced in proportion to reflect this.

Corporate income tax – general information

Residence

Taxable income

For UK companies, taxable income covers profits made from trading activities, professional services, or other business operations carried out within the United Kingdom. It also includes passive income such as interest, dividends, and rental earnings from UK property. In addition, when a company sells an asset, the profit from that sale (called a chargeable gain) forms part of its taxable income, after deducting any eligible costs from the sale price.

To work out the company’s taxable income, you begin with the profit reported in the company’s accounts. From there, you add back costs that are not allowed for tax purposes, like business entertainment or penalties. You then subtract approved deductions and capital allowances. Any chargeable gains, after considering losses and inflation, are added to the total. Further adjustments are made for things like group relief, using losses, and charges relating to controlled foreign companies, following the rules set out in the Corporation Tax Act 2009 and Corporation Tax Act 2010 (specifically Parts 2 and 3).

Non-resident companies are only taxed in the UK on profits that come from UK sources. This covers income made through a permanent establishment in the UK, such as a branch or office. Also, any profits or gains connected to UK land or property are taxable, whether or not the company has a physical presence in the country.

Certain types of income, like interest, royalties, and profits from branches, may have particular withholding tax rules or branch profit requirements. These are governed by the Corporation Tax Act 2010 (Part 5, Chapter 2), the Taxation of Chargeable Gains Act 1992, and the Income Tax Act 2007 (Part 9).

Tax period

Tax returns and assessment

UK companies must file their Company Tax Return (CT600) within 12 months following the end date of their accounting period, which is the point up to which their financial accounts are drawn. For instance, if the financial year finishes on 31 December 2024, the CT600 needs to be submitted by 31 December 2025.

Corporation Tax payments are due 9 months and 1 day after the accounting period ends. So, using the same example, if your accounting period ends on 31 December 2024, the deadline for paying the tax would be 1 October 2025.

Advance payments

The way UK companies pay Corporation Tax depends on how much profit they make. If a firm’s profits are £1.5 million or less, it pays its tax in one go, nine months and one day after the end of its accounting period. If the company earns more than £1.5 million, it must pay in advance, splitting the total tax into quarterly payments. This threshold is lower for businesses that belong to a group.

Large companies, with profits between £1.5 million and £20 million, need to pay Corporation Tax in four parts. These payments are due in the 7th, 10th, 13th, and 16th month after the accounting period begins. If a company’s profits are above £20 million, it has to pay every month for twelve months, starting one month after its accounting period starts. Smaller companies, with profits not over £1.5 million, usually pay once after the accounting period finishes.

To work out each payment, the company estimates how much Corporation Tax it owes for that period and divides this amount by the number of payments it needs to make. Payments are made on the set dates. The last payment is then adjusted if needed, based on the actual tax owed when the Company Tax Return (CT600) is submitted.

If a company’s accounting period is less than 12 months, both how many payments it makes and when they are due will be changed to fit the shorter period. Also, if several companies are part of the same group, the profit limits used to decide when payments are due must be shared between those companies to work out their own payment schedules.

Deductions

For UK Corporation Tax, you can claim a deduction for any expense that is spent purely on running your business. This usually covers costs like paying employees and employer National Insurance, rent and utility bills for your business premises, office supplies, software, fees for accountants or lawyers, advertising and travel (as long as you have receipts), repairs that keep your assets in good working order (but do not increase their value), staff training, recruitment charges, and financial costs such as bank fees or interest on certain loans (as long as they meet the Corporate Interest Restriction rules). You can also include capital allowances for eligible equipment, machinery, or fittings. All these deductions are taken from your accounting profits to work out the amount of profit you need to pay tax on.

Carry forward of losses

Starting from 1 April 2025, UK businesses will be able to carry forward trading losses for an unlimited period. These losses can be used against profits made from the same trade in future years, but the following main rules apply:

• Automatic use: Once other reliefs are applied and before capital allowances are deducted, any unused carried-forward losses will automatically be set off against the earliest profits available.
• 50% cap on profits: For accounting periods beginning on or after 1 April 2025, you can only use carried-forward losses to cover up to half of your profits that go above £5 million each year. Where companies are in a group, the group limit is £25 million, shared equally across associated companies.
• Group loss relief: If your company is part of a group where at least 75% of shares are owned, you may choose to pass losses to other group companies, allowing them to lower their own profits for tax purposes.
• Capital losses are separate: Losses from selling assets (capital losses) can only be carried forward to offset future gains from asset sales, not trading profits.

These rules are described in the Corporation Tax Act 2010 (Part 2, Chapter 3), with changes from the Finance Act 2016 introducing the 50% limit, and are still valid for accounting periods beginning in 2025.

Withholding tax

Domestic dividend tax

UK companies do not deduct tax when paying dividends to shareholders who live in the UK. Instead, individuals are responsible for paying tax if their total yearly dividend income goes over their personal tax-free allowance.

The dividend tax rates for the 2025–26 tax year are as follows:

• 8.75% for those who pay the basic rate of tax
• 33.75% for those in the higher-rate tax band
• 39.35% for additional-rate taxpayers

WHT for non-resident companies

Under UK law, there is generally no withholding tax applied to dividends, interest, or royalties paid to companies based outside the UK. Payments are usually made in full, but tax treaties might take precedence and require certain conditions to be met for reduced tax rates. Those receiving payments should check their eligibility for any treaty benefits.

Dividends paid

When UK companies distribute dividends, they pay the full amount to shareholders, whether the shareholder is based in the UK or abroad. There is no deduction for withholding tax on these payments.

Interest

UK borrowers pay interest without deducting tax at source, regardless of whether the lender is a UK resident or from overseas. This is as long as the payment qualifies as interest under UK tax rules and is consistent with any tax treaty definitions.

Royalties

Royalty payments made from UK sources to recipients outside the UK are normally paid in full, without any UK withholding tax. However, the payment must fit the UK’s definition of royalties. If the payment is not made as part of ordinary business activities, it might be treated differently for tax purposes.

Anti-avoidance rules

The UK has several rules in place to prevent tax avoidance and protect its tax revenue. The most important measures are as follows:

• The General Anti-Abuse Rule (GAAR) stops the use of aggressive or artificial tax arrangements.
• The Disclosure of Tax Avoidance Schemes (DOTAS) system requires schemes designed to avoid tax to be reported to the authorities.
• Special anti-hybrid mismatch regulations are used to prevent tax advantages gained from differences in how countries treat certain financial instruments.
• The Corporate Interest Restriction limits the amount of interest that can be deducted for tax purposes if a business has high levels of debt.

Controlled Foreign Companies (CFC)

UK-based groups must include certain profits from their overseas subsidiaries in their UK tax calculations if those profits have been shifted artificially. The main points include:

• A “gateway test” is used to decide which subsidiaries are affected by these rules.
• There are exemptions for businesses that carry out genuine commercial activities or make only small profits.
• The rules contain measures to stop profits from financial or service activities being moved overseas to reduce UK tax.

Transfer Pricing

Any UK business that deals with related companies, either in the UK or abroad, must:

• Set prices for goods, services, interest, royalties, and intangible assets as if they were dealing with a third party (arm’s length principle).
• Keep up-to-date records to show how prices were determined and that their transfer pricing policy is fair.
• Use sound economic analysis to justify how costs and profits are shared within the group.

International aspects-double tax treaties

The United Kingdom has a large number of agreements with other countries to prevent double taxation. These treaties serve several important purposes:

• They decide how taxing rights are shared between the UK and the countries it has treaties with.
• They allow for lower or no withholding tax on payments like dividends, interest, or royalties, as long as the treaty’s requirements are fulfilled.
• They offer ways to avoid being taxed twice, either by giving a tax credit or by exempting certain income from tax.
• They have special rules to work out which country someone is considered a resident of if they could be seen as resident in both places.

Personal income tax

The personal income tax rates in the United Kingdom are:

• 0% on annual taxable income up to GBP 12,570
• 20% on annual taxable income from GBP 12,571 to GBP 50,270
• 40% on annual taxable income from GBP 50,271 to GBP 150,000
• 45% on annual taxable income over GBP 150,000

Exemption from the taxation

Most people living in the UK receive a personal tax-free amount and can take advantage of several specific reliefs, so not all of their income is taxed. Additionally, some types of income and certain groups are fully excluded from income tax.

• Personal allowance: The first £12,570 of your annual income does not attract any tax.
• Savings allowance: If you are a basic-rate taxpayer, up to £1,000 of interest from savings is tax-free, while higher-rate taxpayers have a limit of £500.
• Dividend allowance: You can earn up to £1,000 from dividends each year without paying tax on it.
• ISA earnings: Any interest, dividends, or gains received from Individual Savings Accounts are not taxed.
• Trading and property allowance: You may get up to £1,000 from trading or property in a year tax-free without needing to submit a tax return.
• Remittance basis for non-domiciled residents: Only foreign income and gains brought into the UK are taxed, depending on certain rules and charges.
• Certain government benefits: Payments such as Attendance Allowance, Disability Living Allowance, Personal Independence Payment, and similar benefits are not subject to tax.
• War pensions and armed forces compensation: Official payments given as compensation are not taxable.
• Small employment benefits: Minor gifts or vouchers given to employees, as long as each is worth £50 or less and certain rules are met, are tax-exempt.
• Non-resident exemption: People who are not UK residents only pay tax on income and gains that come from UK sources.

Tax period

Deductions

Personal deduction

Anyone living in the UK can use a personal allowance, which is a part of their income not taxed each year. This full allowance is available to the majority of people. However, if your adjusted net income goes over £100,000, the allowance starts to decrease and disappears altogether when your income hits £125,140 or more.

Other deductible amounts

You can lower the amount of income tax you pay by claiming things such as:

• Pension payments to registered schemes, up to the yearly limit
• Donations to charity through Gift Aid (these are increased by the basic rate of tax)
• Trading and property allowances—up to £1,000 each, no need to show expenses
• Marriage allowance, letting a spouse or civil partner move up to £1,260 of their allowance to you
• Some professional fees and subscriptions, if they have HMRC approval

Allowances

Per Diem

If an employee must travel for work and be away from their usual workplace, they may receive a daily allowance to help pay for meals and other small costs. This allowance can be given at HMRC’s approved rates, so long as the business trip is officially approved and includes an overnight stay or is an extended journey. There is no need to keep every single receipt for these payments.

Daily allowance limits

For travel inside the UK, HMRC has set scale rates for tax-free payments. These are:

• £5 for one meal if the employee is away from their main place of work for at least five hours
• £10 for two meals if away for at least ten hours
• An extra £15 can be claimed for work that continues past 8 pm
• The most that can be paid in one 24-hour period is £25

If an employee has actual costs that are higher than these set rates, these extra amounts can be reimbursed tax-free, but the employee must provide receipts and show the expenses were necessary for work.

International aspects: residence

A person is seen as a UK resident for tax purposes if they pass any part of the statutory residence test. This test checks how many days were spent in the UK and the individual’s ties or connections to the UK.

• Someone is automatically a resident if they spend 183 days or more in the UK during the tax year
• A person is automatically a resident if their only home is in the UK and they spend at least 30 days there in the tax year
• Someone is automatically a non-resident if they spend less than 16 days in the UK, or less than 46 days if they have not been a UK resident in the previous three tax years
• If none of the automatic rules fit, then residency is decided by the sufficient ties test, which looks at UK ties such as family, work, home, visits to the UK, and whether the UK is the person’s main home
• A person becomes a resident if they reach a set number of ties together with their days spent in the UK as shown in a statutory table

If you meet any of the automatic resident rules or pass the sufficient ties test, you will be considered a UK tax resident for that tax year.

Value-added tax  ̶  rates

• 20% is the standard VAT rate in the UK and applies to most goods and services
• 10% is the reduced rate
• 0% applies to zero-rate goods and services

Value added tax – general information

Relevant Legislation

VAT rules in the UK are mainly set out in the Value Added Tax Act 1994. There are also detailed regulations and orders that explain things like how VAT works, registration levels and special situations.

• Value Added Tax Act 1994
• Value Added Tax Regulations 1995
• VAT (Place of Supply of Services) Order
• VAT (Special Provisions) Order

Who is a Taxable Person?

A taxable person is any individual or organisation that regularly carries out business activities and sells goods or services subject to VAT. They must register for VAT if required by law or if they choose to do so voluntarily.

• People, companies or partnerships selling goods or services
• Anyone whose taxable sales are above the current registration limit (£90,000 per year)
• Businesses under the limit who choose to register for VAT
• Foreign companies supplying goods or services in the UK (using special registration rules for non-residents)

What is a Taxable Event?

A taxable event is when a transaction happens that creates a VAT charge. The main situations are selling goods or services, buying goods from other UK businesses, or bringing goods into the UK from abroad.

• Selling goods or services for payment within the UK
• UK businesses buying goods from other EU countries
• Bringing goods into the UK from overseas

How is the Taxable Amount Calculated?

The taxable amount is the value on which VAT is charged. Normally, it is the total money received for the sale, not including VAT, but can be adjusted for certain costs or reductions.

• The full price paid for goods or services (excluding VAT)
• Non-cash payments, or part-cash deals, valued at market price
• Extra costs like delivery or handling, unless these are zero-rated
• Price changes due to discounts, rebates, or credit notes made before or at the time of sale

Tax period

Tax assessment

As of 1 January 2021, the United Kingdom is no longer part of the EU VAT system. UK companies are no longer required to submit EC Sales Lists. Instead, when selling goods or services to EU customers, these transactions must be reported either through the EU’s One-Stop Shop scheme or by making the necessary VAT filings in each relevant EU country. UK VAT-registered businesses do not have to complete a separate EC Sales List anymore.

Reverse charge

The reverse charge is a VAT rule where the responsibility to pay VAT moves from the supplier to the customer in certain situations. In the UK, this mainly affects the following:

• Construction work under the Construction Industry Scheme (CIS) reverse charge rules
• Sales of mobile phones, computer chips, and gaming consoles when the seller is either not VAT registered or based outside the UK
• Bulk sales of gas, electricity, heating, or cooling when the seller does not have a UK presence

When using the reverse charge, the customer must include both the output and input VAT in their own VAT return, so there is no actual transfer of funds for the VAT between the two parties.

VAT registration

Standard VAT registration

Any business or individual whose taxable turnover goes above £90,000 within any 12-month period must register for VAT. This registration must be completed within 30 days after the month when the threshold is exceeded. Businesses with lower turnover can also choose to register for VAT voluntarily if they wish.

Non-established taxable person

If a person or business supplies goods or services in the UK but does not have a fixed place of business here, they must register as a non-established taxable person. This is often the case for overseas companies selling directly to UK customers. Such persons need to account for VAT in the same way as UK-registered businesses, even if their sales do not reach the usual registration threshold.

VAT group registration

A VAT group can be set up by two or more companies that are all based in the UK and are controlled by the same parent company, with at least 75% ownership. The group submits a single VAT return and makes one payment. Transactions between group members are not subject to VAT.