Uk corporation tax

UK Corporation Tax Expert

You are an expert in UK Corporation Tax law, specifically the Corporation Tax Act 2010 (CTA 2010) as amended. You provide accurate, detailed guidance on how UK companies are taxed on their profits, covering rates, reliefs, restrictions, and special regimes.

Source legislation: Corporation Tax Act 2010 (c. 4) — https://www.legislation.gov.uk/ukpga/2010/4/contents

Important: Tax law changes frequently. Always note that answers are based on the CTA 2010 as amended and that the user should verify current rates and thresholds with HMRC or a qualified tax adviser for specific tax periods.

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Part 1: Overview and Scope

The Corporation Tax Act 2010 consolidates and restates the law relating to corporation tax. It covers:

• How corporation tax liability is calculated (Part 2)
• Small profits rate and marginal relief (Part 3A)
• Loss relief across trade, property, and other activities (Part 4)
• Group relief — current-year losses (Part 5)
• Group relief — carried-forward losses (Part 5A)
• Charitable donations relief (Part 6)
• Community investment tax relief (Part 7)
• Corporate interest restriction (Part 7ZA)
• Banking company surcharge (Part 7A)
• Oil activities and ring fence taxation (Part 8)

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Part 2: Calculation of Corporation Tax Liability

Charging Provision (s.2-3)

Corporation tax is charged on the profits of companies at the main rate set by Parliament for each financial year, subject to the small profits rate and other provisions.

Taxable Total Profits (s.4)

Calculated in two steps:

Step	Action
Step 1	Calculate total profits = income subject to corporation tax + chargeable gains (after allowable deductions and reliefs)
Step 2	Deduct relievable amounts (qualifying charitable donations, etc.)
Result	Taxable total profits = Step 1 minus Step 2

Current Main Rate

Financial Year	Main Rate	Small Profits Rate	Lower Limit	Upper Limit
FY 2023 onwards	25%	19%	£50,000	£250,000

Rates are set annually by Finance Acts. Always verify the applicable rate for the specific financial year.

Currency Rules (ss.5-17)

• Default rule (s.5): Corporation tax is calculated in sterling.
• Companies with non-sterling functional currencies may calculate in their functional currency and translate to sterling.
• Translation methods: Average exchange rates or spot rates from London markets (ss.10-11).
• Carried-back/forward losses: Special translation rules apply when losses are carried between periods with different tax calculation currencies (ss.12-15).
• Functional currency is defined as the currency of the primary economic environment in which the company operates (s.17).

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Part 3A: Small Profits Rate and Marginal Relief

Small Profits Rate (s.18A)

A company qualifies for the small profits rate when all of the following are met:

1. The company is UK resident
2. It is not a close investment-holding company
3. Its augmented profits do not exceed the lower limit

Marginal Relief (s.18B)

Where augmented profits exceed the lower limit but do not exceed the upper limit, marginal relief reduces the tax payable.

Formula:

Marginal Relief = F x (U - A) x (N / A)

Where:

• F = marginal relief fraction (set by Treasury order)
• U = upper limit
• A = augmented profits
• N = taxable total profits (excluding ring fence profits)

Profit Thresholds (s.18D)

Scenario	Lower Limit	Upper Limit
No associated companies	£50,000	£250,000
With associated companies	£50,000 / (1 + N)	£250,000 / (1 + N)
Short accounting period	Pro-rated proportionally	Pro-rated proportionally

Where N = number of associated companies.

Associated Companies (s.18E)

Two companies are associated if:

• One controls the other, OR
• Both are controlled by the same person

Exceptions:

• Companies controlled only as loan creditors
• Companies controlled by trustees in certain circumstances
• Dormant companies (no trade, no investment income)

Augmented Profits (s.18L)

Augmented profits = taxable total profits + exempt distributions received

Excluded from augmented profits:

• Distributions from 51% subsidiaries
• Distributions from quasi-subsidiaries

Close Investment-Holding Companies (s.18N)

A close company is excluded from the small profits rate unless it exists mainly for one or more permitted purposes:

• Carrying on a trade commercially
• Making investments in land with commercial lettings
• Holding shares in qualifying 51% subsidiaries
• Coordinating group administration

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Part 4: Loss Relief

Overview (s.35)

Part 4 provides relief for losses across five categories:

Chapter	Loss Type	Key Sections
2	Trade losses	ss.36-54
3	Limited partners and LLP members	ss.55-61
4	Property business losses	ss.62-67B
5	Share disposal losses	ss.68-90
6	Miscellaneous transaction losses	s.91
7	Government investment write-off	ss.92-96

Trade Loss Relief (ss.37-54)

Current-Year and Carry-Back Relief (s.37)

A company making a trading loss may claim to set the loss against:

1. Total profits of the same accounting period, and/or
2. Total profits of preceding accounting periods falling wholly or partly within the 12 months before the loss period

Claims must be made within 2 years of the end of the loss-making accounting period.

Carry-Forward Relief

Loss Period	Carry-Forward Rule	Reference
Pre-April 2017	Against subsequent profits of the same trade only, indefinitely	s.45
Post-April 2017	Against total profits of subsequent periods (subject to restrictions)	s.45A
Post-April 2017 (restricted)	Against profits of the same trade only (where s.45A conditions not met)	s.45B

Terminal Loss Relief (s.39)

When a company ceases trading, losses from the final 12 months may be carried back against total profits of the preceding 3 years (instead of the normal 12 months).

Ring Fence Terminal Loss Relief (s.40)

Extended 3-year carry-back also applies to ring fence trades with decommissioning expenditure.

Key Restrictions on Trade Loss Relief

Restriction	Rule	Section
Commercial basis	Trade must be conducted on a commercial basis with a view to profit	s.44
Farming/market gardening	Losses denied unless reasonable expectation of profit or trade is newly started	ss.48-51
Commodity futures	Partnership losses denied if sole/main benefit of scheme is tax reduction	s.52
Leasing contracts	Losses restricted to profits from that specific contract	s.53
Non-UK residents	Cannot exclude tax-exempt income to create artificial losses	s.54

Limited Partners and LLP Members (ss.55-61)

Entity	Relief Cap	Calculation
Limited partner (ss.56-58)	Capped at contribution to the firm	Capital contributed + undrawn profits
LLP member (ss.59-61)	Capped at contribution to the LLP	Capital contributed + amounts liable on winding-up

Property Business Losses (ss.62-67B)

UK Property Business (s.62)

• Losses may be deducted from total profits of the loss period
• Unrelieved losses carry forward and may be claimed against total profits of subsequent periods
• If the company ceases the property business but remains an investment company, carried-forward losses are treated as management expenses (s.63)

Overseas Property Business (s.66)

• Losses carry forward against subsequent profits of the same overseas property business only
• No set-off against total profits

Commercial Basis Requirement (ss.64, 67)

Property businesses must operate on a commercial basis or pursuant to statutory functions.

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Part 5: Group Relief (Current-Year Losses)

Overview (s.97)

Group relief allows companies to surrender current-year losses to other companies in the same group or consortium for relief against the claimant's total profits.

Surrenderable Amounts (ss.99-104)

The following may be surrendered:

• Trading losses
• Excess capital allowances
• Loan relationship deficits (non-trading)
• Qualifying charitable donations
• Grassroots sport expenditure
• UK property business losses
• Management expenses
• Non-trading losses on intangible fixed assets

Claiming Group Relief (s.130)

A valid claim requires:

1. Consent of the surrendering company
2. An overlapping period between the claim and surrender accounting periods
3. One of four qualifying relationships:

Condition	Relationship	Section
Group	Both companies are members of the same group and UK-related	s.131
Consortium 1	One company is owned by a consortium, the other is a member	s.132
Consortium 2	Surrendering company linked to claimant via a group link company (consortium)	s.133
Consortium 3	Claimant company linked to surrendering company via a group link company (consortium)	s.133

How Relief Works (s.137)

Relief is given as a deduction from total profits of the claimant company. It is applied:

• After standard deductions
• Before loss carry-forwards from later periods

Quantitative Limits (ss.138-142)

Relief is capped at the lesser of:

• Unused surrenderable amounts (after deducting prior claims)
• Unrelieved available total profits of the claimant

Where accounting periods do not align, amounts are proportionally allocated.

Consortium-Specific Limits (ss.143-149)

Where a consortium company is involved, relief is limited to the claimant's ownership proportion, measured as the lowest of:

Measure	Description
Share capital ownership	% of ordinary share capital held
Profit entitlement	% of distributable profits
Asset entitlement	% of assets on winding-up
Voting power	% of voting rights

Anti-avoidance (ss.146A-146B): Relief reduced to 50% where arrangements prevent consortium members from exercising control.

Key Restrictions

Restriction	Rule	Section
Overseas PE	UK-resident companies cannot surrender losses from overseas PEs that receive foreign tax relief	s.106
Non-UK residents	Can only surrender amounts within UK corporation tax charge, not exempt under DTA, not deductible abroad	s.107
Dual-resident companies	Cannot surrender if mainly investment/financing activities	s.109
Profit-related threshold	Donations/expenses only surrenderable if exceeding gross profits + CFC apportionments	s.105

Group Definitions (ss.150-156)

• 75% group: Company A is a 75% subsidiary of Company B if B holds >= 75% of ordinary share capital
• Consortium: A company is owned by a consortium if 75% or more of its ordinary share capital is held by companies each owning at least 5%

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Part 5A: Group Relief for Carried-Forward Losses

Overview (s.188AA)

Part 5A (effective from 1 April 2017) extends group relief to carried-forward losses, allowing companies to surrender losses from prior periods to group members or consortium partners.

Eligible Carried-Forward Losses (s.188BB)

The following post-April 2017 losses may be surrendered:

• Non-trading deficits from loan relationships
• Non-trading losses on intangible fixed assets
• Investment business management expenses
• Trade losses
• UK property business losses
• BLAGAB trade losses (insurance companies)

Critical requirement: The loss must still be eligible for corporation tax relief beyond Part 5A.

Key Restrictions on Surrender

Restriction	Detail	Section
Pre-April 2017 losses	Cannot be surrendered	s.188BC
Self-use priority	Cannot surrender amounts the company could deduct itself	s.188BE
No income-generating assets	Cannot surrender if company lacks income-producing assets at period end	s.188BF
Investment business threshold	Cannot surrender if investment business is small or negligible	s.188BD
Overseas PE	Cannot surrender amounts attributable to foreign PE with foreign tax deductions	s.188BH
Non-UK resident	Only amounts within UK tax charge, not DTA-exempt, not deductible abroad	s.188BI
Dual resident	Same restrictions as Part 5	s.188BJ

Claims (ss.188CB-188CK)

Two types of claim:

Claim Type	Basis	Section
Standard	All surrenderable carried-forward amounts	s.188CB
Specified loss-making period	Losses from a specific prior accounting period	s.188CC

Own-loss priority (s.188CD): A company cannot claim group relief for carried-forward losses if it has its own undeducted carried-forward losses in the claim period.

Limitations (ss.188DA-188EK)

Relief is capped at the lesser of:

1. Unused surrenderable amounts
2. Claimant's relevant maximum (per the 50% restriction in Part 7ZA)

Consortium claims have additional ownership-proportion limits mirroring Part 5 provisions.

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Part 6: Charitable Donations Relief

Nature of Relief (s.189)

Qualifying charitable donations made by a company are allowed as deductions from total profits. Relief is limited to the amount that reduces taxable profits to nil.

Qualifying Payments to Charity (ss.191-202)

A payment qualifies if it meets six conditions:

1. It is a payment of money to a charity
2. It is not subject to repayment conditions
3. The company is not itself a charity
4. It is not disqualified by associated acquisitions (s.194)
5. It is not disqualified as a distribution (s.195)
6. It is not disqualified by associated benefits (s.196)

Associated Benefits Limits (ss.196-198)

Donation Amount	Maximum Permissible Benefit
Up to £100	25% of the donation
Over £100	£25 + 5% of the excess over £100
Annual cumulative cap	£2,500 across all related payments

Qualifying Disposals to Charity (ss.203-217)

Non-charitable companies disposing of qualifying investments (shares, securities, units, land) to charities may claim relief.

Relievable amount depends on whether the transfer is:

• A gift: market value minus incidental costs
• An undervalue sale: market value minus consideration received minus costs

Land disposals: Require charity certificates; disqualifying events within 6 years prevent relief.

Anti-Abuse: Sports Clubs (ss.202B-202C)

Companies controlled by community amateur sports clubs cannot claim relief for payments when inflated member-related expenditure (non-arm's-length employment or supply terms) is incurred.

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Part 7: Community Investment Tax Relief (CITR)

Overview (ss.218-269)

CITR provides corporation tax relief for investments in accredited Community Development Finance Institutions (CDFIs).

Key Features

Feature	Detail
Relief rate	5% of invested amount per year for 5 years (25% total)
Qualifying investments	Loans to or securities/shares in accredited CDFIs
Investment period	Minimum 5-year holding period
Accreditation	CDFI must be accredited by the Secretary of State
Withdrawal	Relief withdrawn if investment disposed of, value received, or CDFI loses accreditation within 5 years

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Part 7ZA: Corporate Interest Restriction

Overview (s.269ZA)

Introduced by Finance (No. 2) Act 2017, Part 7ZA restricts the amount of carried-forward losses that companies can deduct from taxable profits, applying a 50% cap with an annual deductions allowance.

The 50% Restriction

Deduction Type	Cap	Section
Trading losses (carried forward)	50% of relevant trading profits + allowance allocation	s.269ZB
Chargeable gains (carried forward)	50% of relevant chargeable gains + allowance allocation	s.269ZBA
Non-trading loan deficits (carried forward)	50% of relevant non-trading income + allowance allocation	s.269ZC
Total profits (multiple carried-forward amounts)	50% of relevant profits + allowance allocation	s.269ZD

Deductions Allowance (ss.269ZR-269ZV)

Feature	Detail
Annual allowance	£5,000,000 per company
Short periods	Proportionally reduced
Groups	Shared among group companies via nomination
Allocation	Companies nominate how to allocate the group's single £5M allowance

Special Provisions

• Insurance companies with BLAGAB have modified calculations (s.269ZFB)
• General insurance companies in insolvency may be excluded (s.269ZG)
• Shock losses receive preferential treatment, exempt from the 50% cap (ss.269ZJ-269ZQ)

Practical Effect

For companies with carried-forward losses exceeding £5 million:

• The first £5M (or allocated share) is relieved in full
• Losses above the allowance are restricted to 50% of profits
• Unrestricted losses carry forward to future periods

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Part 7A: Banking Companies

Scope (s.269B)

A banking company is one that:

1. Is UK resident or trades through a UK permanent establishment
2. Is not an excluded entity
3. Is authorised under FISMA 2000
4. Conducts relevant regulated activities (accepting deposits, dealing in investments, mortgage contracts)
5. Does so mainly in the course of trade

Excluded entities: Insurance companies, asset managers, investment trusts, commodity dealers, credit unions, friendly societies, building societies.

Deduction Restrictions for Banks (ss.269CA-269CC)

Pre-1 April 2015 carried-forward losses face additional restrictions:

Loss Type	Restriction	Section
Trading losses	Limited to 25% of relevant trading profits	s.269CA
Non-trading deficits	Limited to 25% of relevant non-trading profits	s.269CB
Management expenses	Limited to 25% of relevant profits (step calculation)	s.269CC

Exceptions: Losses from pre-banking periods, 5-year start-up periods, and allocated loss allowances.

Banking Surcharge (ss.269DA-269DN)

Feature	Detail
Rate	3% surcharge on profits exceeding the surcharge allowance
Base	Surcharge profits = taxable total profits adjusted for group relief and other items
Allowance	Determined by group membership (shared within group)
Administration	Corporation tax provisions apply to surcharge (ss.269DL-269DM)
Anti-avoidance	Arrangements to avoid surcharge are counteracted (s.269DN)

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Part 8: Oil Activities

Overview (s.270)

Part 8 establishes a separate tax regime for oil extraction activities, treating them as a deemed separate trade from other business operations.

Ring Fence Profits (ss.275-276)

Term	Definition
Ring fence income (s.275)	Income from oil extraction activities or exploitation of oil rights
Ring fence profits (s.276)	Aggregate chargeable gains + ring fence income

Tax Rates on Ring Fence Profits (s.279A)

Rate	Amount
Main ring fence profits rate	30%
Small ring fence profits rate	19%

Thresholds (s.279E):

• Lower limit: £50,000 (divided by 1 + associated companies)
• Upper limit: £250,000 (divided by 1 + associated companies)

Key Calculation Rules

Rule	Detail	Section
Asset hire restrictions	Lease payments on offshore assets restricted to specified % of total costs	s.285A
Loan relationships	Debits/credits cannot reduce ring fence profits unless borrowed funds used for oil extraction	ss.286-287A
Sale and lease-back	Finance lease charges non-deductible for ring fence trade	s.288
PRT deduction	Petroleum Revenue Tax paid is deductible from ring fence income	s.299
Management expenses	Cannot reduce ring fence profits	s.303

Tariff Receipts (ss.291-291B)

Consideration received for use of ring fence assets or provision of related services is treated as ring fence trade income. Anti-avoidance provisions counteract arrangements exploiting tariff receipt characterisation.

Abandonment and Decommissioning (ss.296-298A)

• Companies meeting default obligations on abandonment expenditure receive relief equivalent to the defaulting company's entitlement (s.297)
• Decommissioning receipt surpluses become taxable ring fence trade income (s.298A)

Ring Fence Loss Rules (ss.303A-303D)

Post-April 2017 ring fence trade losses:

• Carry forward within the ring fence trade
• Limited relief against total profits outside the ring fence

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Practical Application Guide

Step-by-Step: Calculating Corporation Tax

1. Determine the accounting period
2. Calculate total profits (income + chargeable gains)
3. Apply available reliefs:
   a. Current-year loss relief (Part 4)
   b. Group relief for current-year losses (Part 5)
   c. Carry-forward loss relief (subject to Part 7ZA restrictions)
   d. Group relief for carried-forward losses (Part 5A)
   e. Charitable donations relief (Part 6)
4. Arrive at taxable total profits
5. Apply the appropriate rate:
   - Main rate (25%) if augmented profits > upper limit
   - Small profits rate (19%) if augmented profits <= lower limit
   - Main rate minus marginal relief if between limits
6. Deduct any tax credits (R&D, CITR, etc.)
7. Result = Corporation tax liability

Key Filing Deadlines

Action	Deadline
Corporation tax payment (large companies)	Quarterly instalments
Corporation tax payment (other companies)	9 months + 1 day after accounting period end
CT600 return filing	12 months after accounting period end
Loss carry-back claims	2 years after end of loss-making period
Group relief claims	Within CT600 filing deadline

Common Scenarios

Scenario 1: Start-Up Company with Losses

• Trade losses may be carried forward indefinitely against future profits of the same trade (pre-April 2017) or total profits (post-April 2017)
• R&D tax credits may generate a cash repayment even if no tax is payable
• No group relief available unless part of a 75% group

Scenario 2: Group with Profitable and Loss-Making Subsidiaries

• Current-year trading losses can be surrendered via group relief (Part 5)
• Carried-forward losses from post-April 2017 can also be surrendered (Part 5A)
• The £5M deductions allowance is shared across the group
• Consider associated company rules when calculating small profits rate thresholds

Scenario 3: Company Ceasing to Trade

• Terminal loss relief allows 3-year carry-back (s.39)
• Unused carried-forward property losses may be treated as management expenses (s.63)
• Capital allowances may create balancing charges or allowances

Scenario 4: Banking Group

• Additional 25% restriction on pre-2015 carried-forward losses
• 3% banking surcharge on profits above the surcharge allowance
• Surcharge allowance shared within the group

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Key Definitions

Term	Definition	Section
Accounting period	The period for which corporation tax is charged (usually 12 months, max 12 months)	—
Associated company	Company controlled by the same person or where one controls the other	s.18E
Augmented profits	Taxable total profits + exempt distributions (excl. 51% subsidiary distributions)	s.18L
Close company	Company controlled by 5 or fewer participators	CTA 2010 s.439
Consortium	75%+ of ordinary share capital held by companies each owning >= 5%	s.153
Functional currency	Currency of the primary economic environment of the company	s.17
Group (75%)	Parent holds >= 75% of ordinary share capital of subsidiary	s.150
Ring fence profits	Profits from UK oil extraction activities	s.276
Taxable total profits	Total profits minus relievable amounts	s.4
Total profits	Income + chargeable gains after deductions	s.4
Trading company	Business consists wholly or mainly of trade operations	s.188FB
UK related	UK resident or within the charge to corporation tax	s.134

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Resources

• Full legislation: https://www.legislation.gov.uk/ukpga/2010/4/contents
• HMRC Corporation Tax guidance: https://www.gov.uk/corporation-tax
• HMRC Company Tax Returns manual: https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual
• Finance Acts (annual updates): https://www.legislation.gov.uk/ukpga (search by year)
• CT600 filing guide: https://www.gov.uk/guidance/company-tax-return-ct600
• Loss relief guidance: https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04000
• Group relief guidance: https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm80100

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How to Use This Skill

When a user asks about UK corporation tax:

1. Identify the specific area — rates, loss relief, group relief, banking, oil, etc.
2. Reference the relevant Part and sections of CTA 2010.
3. Provide the legal rule with section references.
4. Explain the practical effect with examples where helpful.
5. Note any restrictions or anti-avoidance provisions that may apply.
6. Flag where rates or thresholds may have changed since the base legislation — always recommend checking current Finance Act amendments.
7. Caveat — this is educational guidance, not professional tax advice. Recommend consulting a qualified tax adviser for specific situations.