Corporation tax is the tax UK limited companies pay on their taxable profits. For new companies it is calculated on profits after allowable business expenses, with different rates applying depending on the level of profit.
This guide explains the key principles, what new founders need to do, and the reliefs that can reduce the amount payable, helping you stay compliant while managing cash flow in the early days.
The Main Corporation Tax Rates
The corporation tax rate that applies to your company depends on its taxable profits for the accounting period. There is a main rate and a small profits rate. These rates change periodically so always check the current figures on GOV.UK before preparing your return.
In recent years the small profits rate has sat at 19% while the main rate has been 25%. Profits falling between certain thresholds may qualify for marginal relief, which blends the two rates. Because thresholds and exact percentages can change, verify the latest position directly with HMRC before filing.
Accounting Periods and When Tax Applies
A new limited company’s first accounting period usually begins on the date it is incorporated at Companies House and runs for 12 months, or to the end of the company’s chosen accounting reference date if shorter. Subsequent periods normally run for 12 months.
You must identify your accounting periods accurately because corporation tax is calculated and filed for each one separately. Many early-stage founders choose 31 March or 30 April as their year end to align with the tax year or simplify bookkeeping. Changing an accounting reference date later is possible but requires notification to Companies House within strict deadlines.
Filing Deadlines and Payment Dates
Company tax returns (CT600) must normally be filed within 12 months of the end of the accounting period. However, the payment of any corporation tax due is usually required nine months and one day after the end of the accounting period. Late filing or payment attracts penalties and interest.
For the smallest new companies with straightforward affairs, keeping accurate records from day one makes meeting these deadlines far easier. Use cloud accounting software that can produce a trial balance and basic profit and loss account. Submit the return online through the HMRC portal using your company’s unique taxpayer reference. If your company becomes liable to pay corporation tax by instalments in future years, the deadlines move earlier.
Calculating Taxable Profits
Start with the company’s accounting profit shown in the profit and loss account. Then adjust for items that are not allowable for tax. Common adjustments include adding back depreciation and instead claiming capital allowances, disallowing entertaining costs, and ensuring loan interest and pension contributions meet HMRC rules.
Keep clear records of every expense and its purpose. For example, if you buy a laptop for product photography, the full cost may qualify for capital allowances or the annual investment allowance rather than being written off over several years. Early-stage e-commerce sellers often benefit from immediate relief on equipment and software used to build their online store. Because allowable expenses and reliefs vary, cross-check each category against current HMRC guidance.
Reliefs and Allowances for Early-Stage Companies
New companies can reduce their corporation tax bill through several reliefs. Capital allowances let you deduct the cost of qualifying plant and machinery. Research and development (R&D) tax relief can provide additional deductions or cash credits if your work meets the HMRC definition of R&D, which many tech-enabled e-commerce startups satisfy when improving their platform or logistics systems.
Losses incurred in the early years can be carried forward to offset against future profits or, in some cases, carried back. Startup companies should track pre-trading expenditure carefully as certain costs incurred before incorporation can be treated as incurred on the first day of trading. Always confirm which reliefs apply to your specific activities by reviewing the latest GOV.UK pages, as qualifying conditions and rates can change.
Practical Steps for New Founders
1. Register the company for corporation tax with HMRC within three months of starting business activities.
2. Choose and consistently apply an accounting policy that suits a growing e-commerce business, such as accruals rather than cash accounting.
3. Maintain separate business bank accounts and credit cards to simplify expense allocation.
4. Record all income and expenditure monthly using bookkeeping software that can tag transactions for tax adjustments.
5. Prepare draft accounts shortly after each year end and calculate the tax provision before the nine-month payment deadline.
6. Consider engaging a qualified accountant for the first one or two returns to ensure reliefs are maximised and common errors are avoided.
These habits reduce stress at filing time and give you accurate management accounts for pricing, margin tracking and cash-flow forecasting.
Staying Compliant and Seeking Support
HMRC provides online tools, webinars and helplines for new limited companies. Use the corporation tax toolkit on GOV.UK to check common mistakes. Keep records for at least six years in case of enquiries.
Founders based in West Yorkshire can explore free startup support at places such as Loomworks in Liversedge, which offers selected early-stage e-commerce founders desk space, a registered address and mentoring without taking fees or equity. Combine this practical help with professional tax advice tailored to your trading numbers to keep corporation tax obligations under control while you grow.
Frequently asked questions
When does a new limited company first pay corporation tax?
Corporation tax is due nine months and one day after the end of the company’s first accounting period. For a company incorporated in January with a 31 December year end, the first payment would usually be due the following 1 October. Always confirm exact deadlines on GOV.UK because they depend on your incorporation and year-end dates.
Can a startup claim back losses against corporation tax?
Yes. Trading losses in the early years can usually be carried forward to reduce tax on future profits. In certain circumstances they may also be carried back or used in other ways. The exact rules depend on the type of loss and when it arose, so check current HMRC guidance for your situation.
Do I need an accountant to file my first corporation tax return?
It is not compulsory, but many new founders choose to use an accountant for the first return to ensure all allowable expenses and reliefs are correctly claimed. Accurate records kept from day one make the process simpler whether you file yourself or engage help.
What records should I keep for corporation tax?
Keep invoices, bank statements, receipts, contracts and mileage logs for at least six years. Digital copies are acceptable if they are clear and organised. Good records help you calculate taxable profit accurately and respond quickly if HMRC asks for more information.
How do I register a new company for corporation tax?
Within three months of starting to do business you must tell HMRC that the company exists and has started trading. This is usually done online through the GOV.UK website using the company’s incorporation details. You will then receive a unique taxpayer reference number.
Related reading: How to build a simple cash flow forecast for your startup, How to price products to achieve healthy profit margins, How to register as an employer with HMRC and set up PAYE. Browse all tax & finance guides or apply to Loomworks.