Key facts
- All UK-resident limited companies must pay Corporation Tax on their worldwide profits.
- Foreign companies with a UK permanent establishment pay CT on profits attributable to that establishment.
- Unincorporated associations, clubs, and societies pay CT if they have taxable income.
- Sole traders and ordinary partnerships do not pay Corporation Tax — they pay Income Tax instead.
UK Limited Companies
Every company incorporated in the UK is automatically UK-resident for Corporation Tax purposes and must pay CT on its worldwide profits.[1] This includes:
- Private limited companies (Ltd) — by far the most common type
- Public limited companies (PLC)
- Companies limited by guarantee (often used by charities and non-profits)
- Community Interest Companies (CICs) — social enterprises that pay CT on trading profits[3]
- Limited Liability Partnerships (LLPs) — generally “transparent” for tax (partners pay Income Tax), but an LLP can be treated as a company in certain circumstances
Dormant companies may still need to file a Company Tax Return, even if they have no tax to pay. HMRC can grant an exemption from filing if the company has never been active or has formally ceased trading.[1]
Foreign Companies with a UK Presence
A company incorporated overseas does not automatically pay UK Corporation Tax. However, it will be liable if:[2]
- It has a permanent establishment in the UK (e.g. a branch, office, factory, or workshop)
- It is centrally managed and controlled from the UK (making it UK-resident regardless of where it was incorporated)
A permanent establishment generally means a fixed place of business through which the company carries on its trade. Simply having a UK bank account, agent, or customer base is usually not enough on its own.
Clubs, Associations & Societies
Unincorporated associations — such as sports clubs, social clubs, and trade associations — are liable to Corporation Tax on:[2]
- Trading profits (e.g. bar sales, event ticket income)
- Investment income (e.g. bank interest, rental income from property)
- Chargeable gains (e.g. selling an asset like a clubhouse)
Membership subscriptions and donations from members are generally not taxable, provided the club is genuinely mutual (i.e. members are trading with themselves).
Community Amateur Sports Clubs (CASCs) registered with HMRC can claim tax reliefs similar to charities, including exemptions on trading income up to £50,000 and rental/interest income up to £30,000.
Who Does NOT Pay Corporation Tax?
The following are not liable to Corporation Tax:
| Entity | Tax Position |
|---|---|
| Sole traders | Pay Income Tax on business profits via Self Assessment |
| Ordinary partnerships | Each partner pays Income Tax on their share of profits |
| Registered charities | Exempt from CT on most income and gains, provided they are used for charitable purposes[4] |
| Individuals / employees | Pay Income Tax through PAYE or Self Assessment |
The distinction matters because the tax rates, reliefs, filing obligations, and deadlines are completely different for Corporation Tax versus Income Tax. Choosing the wrong structure can mean paying more tax than necessary.
How to Register
When you incorporate a company at Companies House, HMRC is notified automatically. However, if the company becomes active (starts trading, receives income, or buys/sells assets), you must register for Corporation Tax within 3 months of starting business activity.[1]
Registration can be done online via HMRC’s services, or by completing form CT41G. HMRC will then issue a Unique Taxpayer Reference (UTR) for the company. Once registered, the company reports its profits each year on a CT600, which can be submitted to HMRC online.
Frequently Asked Questions
Who has to pay Corporation Tax?
All UK-resident limited companies pay Corporation Tax on their worldwide profits. Foreign companies with a UK permanent establishment, and unincorporated associations with taxable income, are also liable.
Do sole traders pay Corporation Tax?
No. Sole traders and ordinary partnerships pay Income Tax on their business profits via Self Assessment. Corporation Tax only applies to companies and certain other organisations.
Do charities pay Corporation Tax?
Registered charities are generally exempt from Corporation Tax on most income and gains, provided the funds are used for charitable purposes.
Does a dormant company need to file a Corporation Tax return?
A dormant company may still need to file a CT600 return. However, HMRC can grant an exemption from filing if the company has never been active or has formally ceased trading.
Further Reading
- What Is Corporation Tax? — an overview of the tax and current rates
- Registering for Corporation Tax — step-by-step registration guide
- Close Companies — special rules for companies controlled by a few people
- Setting Up a Company & Tax — what to do after incorporation
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Sources
- Corporation Tax — GOV.UK
- Corporation Tax: who is liable — GOV.UK
- Community Interest Companies — GOV.UK
- Charities and tax — GOV.UK