Corporation Tax and Year-End Accounts for Limited Companies

For UK limited companies, corporation tax in 2026 follows the two-rate structure introduced in April 2023: 19% on profits up to £50,000, 25% on profits above £250,000, with marginal relief in the £50k-£250k band that produces an effective rate of 26.5% on the marginal band. The result is that a profitable SME hitting £150k of profit faces materially higher effective tax than the same business under the pre-2023 19% flat rate. Add Director Loan Account Section 455 charges, FRS 105 micro-entity reporting, and the loss carry-forward/back rules, and corporation tax planning for SMEs is more nuanced than it has been for a decade.

The 25% main rate vs the 19% small profits rate

The £50,000 and £250,000 thresholds reduce proportionally for short accounting periods and where the company is part of a group with associated companies. A company with two associated companies splits the thresholds three ways: small profits rate available only on the first £16,667 each.

Marginal relief in the £50k-£250k band

Marginal relief tapers the effective rate between 19% and 25%. The formula:

1. 1Calculate corporation tax at 25% on the full profit.
2. 2Subtract marginal relief: (Upper limit £250k − profit) × (3/200).
3. 3For a £150,000 profit: tax at 25% = £37,500. Marginal relief = (£250k - £150k) × 3/200 = £1,500. Net tax = £36,000.
4. 4Effective rate at £150k: £36,000 / £150,000 = 24%.

Marginal-relief profits effectively pay 26.5% on the slice between £50k and £250k. For an SME crossing £50k, an extra £50,000 of profit increases tax by £13,250, not £9,500. Pension contributions, R&D claims and capital allowance timing matter more in the marginal band than at either extreme.

CT600 and annual accounts deadlines

• CT600 (corporation tax return): due 12 months after the end of the accounting period.
• Corporation tax payment: due 9 months and 1 day after the end of the accounting period.
• Annual accounts filing at Companies House: due 9 months after year-end (private company), 6 months (public).
• Confirmation statement at Companies House: due once every 12 months.
• For a 31 March year-end, CT payment 1 January, CT600 31 March, accounts 31 December.

Director Loan Account and Section 455

Director Loan Account (DLA) overdrawn balances at year-end create a Section 455 charge:

1. 1Section 455 charge: 33.75% of overdrawn DLA balance at year-end.
2. 2Charge applies if the loan is not repaid within 9 months of year-end.
3. 3Repayment within 9 months avoids the charge entirely.
4. 4Repaid loans: Section 455 paid is repayable to the company once HMRC processes the reclaim (typically 9-12 months after the repayment quarter).
5. 5Beneficial loan benefit: separately, overdrawn DLA above £10,000 attracts BiK at HMRC official rate (2.25% in 2026).

FRS 105 micro-entity accounts

For very small companies, FRS 105 provides a simplified reporting standard:

• Eligibility: turnover under £632k, total assets under £316k, average employees under 10 — meet two of three.
• Simplified profit & loss: minimum 5 line items.
• Simplified balance sheet: 6 line items.
• No detailed disclosures, cash flow statement, related party notes, or accounting policies.
• Filing: micro-entity accounts at Companies House, even simpler abbreviated version available.

For typical Harrow SMEs (turnover £100k-£600k), FRS 105 is the right reporting framework. Larger or more complex businesses use FRS 102 Section 1A (small entity) or full FRS 102.

Carrying losses forward or backward

Corporation tax losses are flexible:

• Trading losses can carry back 1 year against trading profits.
• Carry forward: against future profits of the same trade.
• Group relief: losses can offset profits of other group companies.
• Capital losses: only offset against capital gains.
• Restriction: from 2017, post-April-2017 losses brought forward can offset only 50% of profits above £5m.

Pre-trading expenses deductions

Expenses incurred before incorporation or before trading begins:

1. 1Pre-trading expenses incurred up to 7 years before commencement of trade are deductible if they would have been allowable when trading.
2. 2Treated as if incurred on the first day of trading.
3. 3Capital expenditure pre-trading qualifies for capital allowances from start date.
4. 4Documentation: receipts, supplier statements, evidence of business intent at the time of expenditure.