Corporation Tax Guide for Small Businesses and Contractors

Contracting has emerged as a highly sought-after career choice, driven by its numerous advantages. As a contractor, you leverage your expertise to deliver services to clients on a project basis. Enjoy lucrative compensation, flexible hours, and the autonomy to manage your work-life balance, making contracting an attractive option for professionals seeking independence and control over their careers. Many move from a sole trader setup to that of a limited company.

As a company operating in England and Wales, understanding Corporation Tax is crucial to ensure compliance and avoid penalties. Whether you’re a contractor, budding startup, or small business owner, navigating the complexities of taxation is essential. In this blog, we’ll delve into the basics of Corporation Tax, its rates, filing deadlines, penalties for late submission, and how Neon Accounting Ltd can assist you in managing this aspect of your business.

What is Corporation Tax?

Corporation Tax is a tax levied on the profits of limited companies and other corporate entities operating in the UK, including those registered in England and Wales. It’s a key contributor to the government’s revenue and plays a significant role in shaping the economic landscape. Essentially, it’s a tax on a company’s taxable profits after deducting allowable expenses.

Corporation tax is obligatory for all limited companies, with no minimum threshold, levied on their profits. The legal responsibility for filing Corporation Tax returns with HMRC and settling the owed amount by the deadline lies with the limited company director(s).

Corporation Tax Rates

As of the latest information available, Corporation Tax rates in the UK can vary. In the 2023/24 tax year, the Main Rate of corporation tax stands at 25%, applying to limited companies with taxable profits exceeding £250,000. Companies with augmented profits below £50,000 qualify for a reduced 19% Small Profits Rate (SPR), while those in the £50,000 to £250,000 profit range may claim marginal relief, paying a tapered rate less than 25%. However, close investment holding companies are ineligible for the SPR and must pay tax at the 25% main rate.

For companies associated with others within the preceding 12 months, the associated company rules could affect Corporation Tax. This might lead to combining and averaging profits, potentially resulting in a higher tax rate.

Filing Deadlines

Meeting filing deadlines is essential to avoid penalties and maintain compliance with HM Revenue and Customs (HMRC). The deadline for filing Corporation Tax returns is usually 12 months after the end of your company’s accounting period. However, it’s advisable to check with HMRC or your accountant for specific deadlines relevant to your company. The deadline for paying your Corporation tax bill will usually be 9 months and a day after the accounting period ends.

Penalties for Late Filing/Payment

Late filing or payment of Corporation Tax can result in penalties imposed by HMRC. These penalties can vary depending on the degree of lateness and the size of the company. It’s crucial to file and pay your Corporation Tax on time to avoid unnecessary fines and legal repercussions.

The penalties for filing your Corporation Tax return late are:

1 Day Late – £100 Penalty

3 Months Late – Another £100 Penalty

6 Months Late – HMRC estimates your Corporation Tax bill and a penalty of 10% of the unpaid tax is levied. This is known as a Tax Determination and cannot be appealed

12 Months Late – Another 10% of any tax not paid

Penalties also ramp up if you repeatedly file your return late. Should you file late 3 consecutive times, the £100 penalties increase to £500.

Tax can be paid by bank transfer, direct debit and over the telephone.

How Neon Accounting Ltd Can Help

Neon Accounting specialises in limited company accounts and corporation tax returns and offers tailored solutions to ensure your business remains compliant while optimising your tax obligations. Neon provides comprehensive services, including:

Year-end accounts

Tax Planning

Compliance Assistance

Tax Advisory Services


Navigating Corporation Tax can be challenging understanding the tax rates, filing deadlines, and penalties for late submission is essential for maintaining compliance and avoiding financial setbacks. With the expertise of Neon Accounting, you can focus on growing your business with confidence that your accounts are taken care of. Get in touch with us today to learn more about how we can support your company’s financial success.