Corporation Tax for Startups: The Complete Guide for New Limited Companies
You've registered your limited company. Now what? Corporation tax is one of the first things you need to understand — and one of the easiest to get wrong as a new founder.
This guide covers everything from registration to your first filing.
The Basics: What You Owe and When
When your company earns profit, it pays Corporation Tax on that profit. The current rates (2025/26):
| Annual Profit | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% (small profits rate) | Most startups fall here |
| £50,001 – £250,000 | 19% – 25% (marginal relief) | Effective rate scales gradually |
| Over £250,000 | 25% (main rate) | Unlikely for early-stage startups |
Good news for startups: If your company earns under £50,000 profit, you pay just 19%. That's lower than the higher rate of income tax (40%) you'd pay as a sole trader.
Learn more about corporation tax rates and marginal relief.
Step 1: Register for Corporation Tax
You must register within 3 months of starting to trade (not 3 months from incorporation).
"Starting to trade" means:
- Making your first sale
- Buying stock or inventory
- Signing contracts with customers
- Starting to provide services
How to register: Use the HMRC online service or your HMRC online account. You'll need your company's UTR (Unique Taxpayer Reference) — HMRC usually sends this automatically after incorporation.
Read the full registration guide.
Step 2: Set Your Accounting Year-End
When you incorporate, Companies House assigns a default year-end (usually the anniversary of incorporation, or 31 March). You can change this.
Popular choices for startups:
- 31 March — aligns with the tax year, simplest for tax calculations
- 5 April — aligns with the personal tax year (useful for dividends planning)
- 31 December — calendar year, common for international businesses
Tip: If you incorporate mid-year, your first accounting period can be up to 18 months for Companies House — but for Corporation Tax, it can't exceed 12 months. A long first period means filing two CT600 returns.
Learn about accounting periods and Corporation Tax.
Step 3: Know Your Deadlines
Two deadlines matter:
| What | When |
|---|---|
| Pay Corporation Tax | 9 months + 1 day after period end |
| File CT600 return | 12 months after period end |
Example: Year-end 31 March 2026 → pay by 1 January 2027 → file by 31 March 2027.
Miss the filing deadline and you'll face automatic penalties — even if you owe £0.
Step 4: Track Your Expenses from Day One
The biggest tax mistake startups make is not tracking expenses properly. Every legitimate business expense reduces your taxable profit.
Pre-Trading Expenses
Expenses incurred up to 7 years before you start trading can be claimed, as long as they would have been allowable if incurred while trading. Common pre-trading expenses:
- Market research
- Business planning
- Legal fees for incorporation
- Website development
- Equipment purchases
- Training courses
Common Startup Expenses
| Category | Examples | Deductible? |
|---|---|---|
| Office/workspace | Rent, utilities, working from home | ✅ Yes |
| Technology | Laptops, software, hosting, domains | ✅ Yes |
| Professional fees | Accountant, solicitor, company formation | ✅ Yes |
| Marketing | Website, ads, business cards, SEO | ✅ Yes |
| Travel | Client meetings, conferences | ✅ Yes |
| Insurance | Professional indemnity, public liability | ✅ Yes |
| Staff costs | Salaries, NI, pensions, recruitment | ✅ Yes |
| Entertainment | Client meals, team socials | ❌ Not for CT |
| Clothing | Unless uniform/protective | ❌ Generally no |
See our complete list of allowable expenses.
Capital Allowances
When you buy equipment, vehicles, or other assets, you claim capital allowances instead of deducting the full cost immediately.
The Annual Investment Allowance (AIA) lets you deduct up to £1 million per year — more than enough for most startups.
Step 5: Pay Yourself Tax-Efficiently
As a startup founder, you'll likely be both director and shareholder. The most tax-efficient approach is usually:
- Pay yourself a salary up to the NI threshold (~£12,570 for 2025/26)
- Take the rest as dividends — taxed at lower rates than salary
- Leave some profit in the company if you don't need it personally
This combination can save thousands compared to taking everything as salary.
Read our dividends vs salary guide.
Step 6: Claim R&D Tax Relief (If Eligible)
If your startup is developing new technology, products, or processes, you may qualify for R&D tax relief. This is one of the most valuable reliefs available:
- Enhanced deduction of 86% on qualifying R&D costs (from April 2024)
- Cash credit of up to 14.5% if your company makes a loss
- Covers staff costs, materials, software, cloud computing, and subcontractors
Common qualifying activities:
- Software development (new features, not maintenance)
- Engineering or manufacturing improvements
- Scientific research
- Process innovation
Many startups qualify without realising it.
Your First CT600 Filing
Your first Corporation Tax return covers the period from when your company started trading to your chosen year-end.
What You Need
Use our CT600 filing checklist, but the essentials are:
- Accounts — profit & loss statement and balance sheet
- Tax computations — how you calculated taxable profit
- iXBRL tagged accounts — your accounts in iXBRL format
- UTR and CRN
Do You Need an Accountant?
Not necessarily. If your company is straightforward — one director, simple trading, no complex tax planning — you can file your CT600 yourself.
Common Startup Tax Mistakes
1. Missing the Registration Deadline
Register within 3 months of starting to trade. Late registration can mean penalties.
2. Mixing Personal and Business Expenses
Keep separate bank accounts. HMRC can enquire if personal expenses appear in company accounts.
3. Not Claiming Pre-Trading Expenses
Those costs before you started trading? Up to 7 years of pre-trading expenses can be claimed.
4. Forgetting Your Director's Loan Account
If you put personal money into the company (or take money out), track it. An overdrawn director's loan account has tax implications.
5. Not Filing When Making a Loss
A loss year still requires a CT600. Plus, you need to file to claim the loss against future profits.
6. Ignoring the Payment Deadline
The payment deadline (9 months + 1 day) comes before the filing deadline (12 months). Many first-time filers miss this.
How Much Will Your Startup Pay?
Quick examples:
| Profit | Tax (19% small profits) | Monthly Equivalent |
|---|---|---|
| £10,000 | £1,900 | £158/month |
| £25,000 | £4,750 | £396/month |
| £50,000 | £9,500 | £792/month |
| £75,000 | £16,562 | £1,380/month |
| £100,000 | £23,750 | £1,979/month |
Use our corporation tax calculator for your exact figure.
File Your First CT600 with Taxpipe
Taxpipe is built for founders filing their own Corporation Tax return. No accounting jargon, no complex software to learn.
- Answer simple questions about your company
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Start your first CT600 filing →
Related Articles
- First Company Tax Return — New Limited Company Guide
- How to Register for Corporation Tax
- Do I Need to File a CT600?
- Dividends vs Salary — Tax-Efficient Pay
- Corporation Tax Allowable Expenses — Complete List
- Accounting Period Longer Than 12 Months: What Happens