Corporation Tax
Corporation Tax is a key consideration for businesses operating in the UK. It's payable to the UK government by tax-resident companies or UK-incorporated businesses on their worldwide income, and is calculated based on tax-adjusted profits.
If you’re an overseas entity trading in the UK through a UK branch or “permanent establishment”, you will be subject to Corporation Tax on profits related to your UK operations.
How much do you pay?
Corporation Tax is currently set at 25% of tax-adjusted profits. But there are a few exceptions, especially for small businesses in the UK.
- Smaller companies with no associated entities and profits under £50,000 enjoy a lower rate of 19%.
- Special rates apply to specific industries such as oil and gas, banking, insurance and shipping.
UK businesses also benefit from several tax reliefs and exemptions. For example, until April 2026, expenses like IT equipment and machinery can be claimed back for tax purposes, reducing taxable profits.
Who calculates it?
Under the UK's self-assessment regime, companies are responsible for determining their Corporation Tax liability and filing an annual tax return. Payments are typically due nine months after the end of the accounting period, though larger companies may need to pay in instalments.
What do you need to do?
Unlike other taxes, you will not receive any Corporation Tax bill reminding you to make a payment. Businesses must proactively calculate, report and pay this tax. Here's how:
- Register with HM Revenue & Customs (HMRC): Use your business tax account, Government Gateway user ID and your company’s 10-digit Unique Taxpayer Reference (UTR).
- Prepare your return: Submit a Corporation Tax return and computation annually, along with iXBRL-tagged accounts, to HMRC.
- Understand branch tax obligations: If you’re an overseas business, ensure profits attributable to your UK branch are included in your Corporation Tax filing.
A guide to understanding UK Income Tax
Income Tax applies to all individuals working or earning income in the UK. This includes salaries, pensions and any other sources of income that a person receives over the personal allowance, which is set at £12,570 for the 2024/2025 tax year.
Employers deduct Income Tax directly from salaries through the Pay As You Earn (PAYE) system and give it to HMRC on a monthly basis.
Employer responsibilities
Employers must calculate and manage Income Tax liabilities for their workforce, including UK-based employees and any overseas workers who are working in the UK. In addition to Income Tax, employers are responsible for accounting for:
- National Insurance Contributions (NICs).
- Entry into a workplace pension scheme (a legal requirement).
- Setting up an efficient payroll system to pay taxes to HMRC.
How much do employees pay?
The amount of Income Tax an employee pays depends on the amounts they earn as income. For the tax year starting 6 April 2024, the rates are:
| Annual taxable income |
% of salary |
| Up to £12,570 (personal allowance) | Tax-free |
| Between £12,571 and £50,270 | Basic rate of 20% |
| Between £50,271 and £125,140 | Higher rate of 40% |
| More than £125,140 | 45% |
It’s also worth noting that if an employee’s income exceeds £100,000, the personal allowance is tapered at £1 for each £2 over this limit.
National Insurance Contributions (NICs)
National Insurance Contributions (NICs) fund benefits for people who are sick, unemployed or retired. Employees pay NICs from their wages, employers pay NICs on top of employee wages and the self-employed pay NICs from their trading profits.
Employers must calculate this amount for their workforce and the company itself, and pay these amounts to HMRC monthly along with Income Tax.
Current NIC rates for employees
| Salary range (£) per month | % of salary |
| Between £1,048 and £4,189 per month | 8% |
| Above £4,189 per month | A further 2% |
Current NIC rates for employers
If you're setting up a company in the UK, the cost of NICs should be factored into your staffing budget staff in addition to basic salary and any benefits provided. In some circumstances, overseas nationals may be exempt from paying UK National Insurance. Always seek financial advice to ensure compliance with tax laws and to see what is relevant to your circumstances.
| Total salary (£) per month | % of salary |
| Above £1,048 per month | 13.8% |
With the right advice from London & Partners, with tax incentives and low corporation tax, the UK is a very affordable place to do business.Brit Services Technology
Value Added Tax (VAT)
Understanding Value Added Tax (VAT) is important when setting up a business in the UK. Proper VAT registration ensures compliance with tax laws and can help your business take advantage of available tax reliefs.
Rich Holm, Indirect Tax Partner at RSM, shares insights into VAT in the UK.
What is VAT?
VAT is a consumption tax which is applied to goods and services in the UK at a standard rate of 20%. That said, sometimes 5% or 0% may apply to certain goods and services. Businesses registered for VAT may recover VAT charges on purchases by offsetting them against their VAT liabilities through VAT returns.
Does my business need to pay VAT?
Whether or not you need to pay VAT on your goods and services depends on whether they are fully taxable, or partly or fully exempt. Seeking expert financial advice can help you register correctly, avoid overpaying and ensure compliance with VAT regulations.
Get help with UK tax
Contact us for more information on tax requirements and incentives.
A guide to UK tax incentives
The UK offers several tax relief schemes that are designed to support businesses and encourage growth. Here are a few key incentives to take note of as a business owner:
Research and Development (R&D) tax credits
R&D tax credits are among the most valuable incentives available in the UK tax system. Two schemes cater to businesses of all sizes:
- SME Scheme: Provides between 26% and 33% of qualifying expenditure as refundable tax credits.
- Research and Development Expenditure Credits (RDEC) Scheme (for large companies): Offers a 12% boost to pre-tax earnings as an above-the-line tax credit.
The six types of expenditure that can qualify for R&D relief, subject to certain limitations, are:
- Staffing costs.
- Subcontracted R&D.
- Externally provided workers (EPWs).
- Consumable and transformable materials.
- Software, data licences and cloud computing services.
- Payments to clinical trial volunteers.
Creative sector tax relief
For businesses in the creative industries, the UK provides eight targeted tax reliefs that can result in refunds of up to 20% of eligible expenditures:
- Film Tax Relief (FTR).
- Animation Tax Relief (ATR).
- High-end Television Tax Relief (HTR).
- Children’s Television Tax Relief (CTR).
- Video Games Tax Relief (VGTR).
- Theatre Tax Relief (TTR).
- Orchestra Tax Relief (OTR).
- Museums and Galleries Exhibition Tax Relief (MGETR).
Employee share plans and incentives
Retaining and incentivising your people is an important objective for most employers and companies. Structuring your cash and share-based incentive arrangements to achieve that goal as effectively and efficiently as possible will give you a competitive advantage.
Patent Box Scheme
The Patent Box Scheme allows businesses to pay a reduced 10% Corporation Tax rate on profits made from qualifying patents. This applies whether the profits come from royalties or from the sale of products that use patented technology. A wide range of industries can take advantage of the scheme, including:
- Electronics.
- Defence.
- Pharmaceuticals.
- Life Sciences.
- Manufacturing.
The scheme encourages companies to keep and commercialise their patents in the UK. It also aims to support the development of new and innovative patented products, giving businesses an incentive to continue investing in research and development.
The Patent Box Scheme also applies to certain other intellectual property (IP) rights such as:
- Plant Variety Rights.
- Regulatory Exclusivity Rights.
- Supplementary Protection Certificates (SPCs).
Content provided by BDO, Blick Rothenberg and Taylor Wessing. This information is intended for general guidance only. You should always seek professional advice.
Last updated: January 2025
How London & Partners can help
Our team offers free advice to potential investors, from startups to established companies. We can:
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