Question 1

How do the current UK Corporation Tax rates and thresholds work?

Accepted Answer

Since April 2023, the UK uses a tiered system rather than a flat rate. Companies with taxable profits of £50,000 or less pay the Small Profits Rate of 19%. Those with profits over £250,000 pay the Main Rate of 25%. For companies falling between £50,000 and £250,000, a "Marginal Relief" sliding scale is applied to ensure a smooth transition between the two rates rather than a sudden tax jump.

Question 2

What are "Associated Companies" and how do they affect my tax bill?

Accepted Answer

Associated Companies are separate businesses under the same control, such as those owned by the same person or a group of close associates. HMRC divides the £50,000 and £250,000 tax thresholds by the total number of associated companies. For example, if you own two companies, each company only qualifies for the 19% rate on its first £25,000 of profit instead of the full £50,000. This rule prevents business owners from splitting one large company into several smaller ones to artificially stay in a lower tax bracket.

Question 3

What is the difference between accounting profit and taxable profit?

Accepted Answer

Accounting profit is the bottom-line figure shown in your business accounts, but taxable profit is the figure HMRC uses after specific adjustments. Some business expenses, like client entertainment or government fines, are "disallowable" and must be added back to your profit for tax purposes. Additionally, standard accounting depreciation is ignored by HMRC and replaced with "Capital Allowances," such as the Annual Investment Allowance (AIA), which often allows for a 100% deduction on equipment costs in the first year.

Question 4

How has the R&D Tax Relief system changed recently?

Accepted Answer

For accounting periods starting on or after April 1, 2024, most companies now use a "Merged Scheme" which provides a taxable 20% credit on qualifying R&D expenditure. There is also a specific "Enhanced R&D Intensive Support" (ERIS) for loss-making SMEs that spend at least 30% of their total budget on R&D. New compliance rules require companies to submit a digital "Additional Information Form" and, in many cases, provide a pre-notification to HMRC within six months of the end of their accounting period.

Question 5

What can I do if my company makes a trading loss?

Accepted Answer

A trading loss can be used strategically in three ways: a "Carry Back," a "Carry Forward," or "Group Relief." You can carry the loss back one year to get a refund on tax previously paid, or carry it forward to offset against future profits, effectively creating a "tax holiday." If your company is part of a group, you can surrender the loss to a profitable sister company to reduce the group's overall tax liability. Loss-making R&D companies also have the option to surrender their loss for an immediate cash credit.

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