How do UK start-ups need to manage their first Corporation Tax return in the 2024/25 year?

How do UK start-ups need to manage their first Corporation Tax return in the 2024/25 year?

For many UK start-ups, the first Corporation Tax return is a significant milestone. It marks the point where a young business moves beyond incorporation and early trading activity into a more structured phase of financial and regulatory responsibility. In the 2024/25 tax year, this process remains broadly familiar but is shaped by recent changes to Corporation Tax rates, reporting expectations, and digital compliance standards. Understanding how to manage this first return correctly can save time, reduce stress, and avoid unnecessary penalties.

This article provides a comprehensive guide for UK start-ups preparing their first Corporation Tax return in the 2024/25 year. It explains what Corporation Tax is, who needs to file, the key deadlines, practical steps for preparation, common mistakes to avoid, and strategic considerations that can benefit a growing business.

Understanding Corporation Tax for UK start-ups

Corporation Tax is a tax on the taxable profits of limited companies and certain other organisations operating in the UK. Most start-ups that incorporate as private limited companies (Ltd) will fall squarely within its scope. Taxable profits generally include trading profits, investment income, and chargeable gains from the sale of assets.

In the 2024/25 tax year, the Corporation Tax regime continues to operate with a main rate and a small profits rate, depending on the level of profits. This introduces an additional layer of calculation for start-ups that move from loss-making or low-profit activity into more substantial profitability during their first accounting period.

For start-up founders, it is important to recognise that Corporation Tax is separate from personal taxes such as Income Tax or National Insurance. Even if directors have not yet paid themselves a salary or dividends, the company itself may still have Corporation Tax obligations.

When a start-up must file its first Corporation Tax return

A common source of confusion for new companies is the timing of the first Corporation Tax return. The obligation does not arise at incorporation but when the company begins trading or receives income. A company is required to inform HM Revenue & Customs (HMRC) when it becomes active, typically within three months of starting to trade.

Once trading has commenced, HMRC will issue a notice to deliver a Company Tax Return (CT600). The first accounting period for Corporation Tax purposes often aligns with, but is not always identical to, the company’s statutory accounts period. In many cases, the first accounting period can be longer than 12 months, but Corporation Tax accounting periods cannot exceed 12 months, meaning they may need to be split.

Understanding these distinctions early helps start-ups plan their bookkeeping and reporting more effectively.

Key deadlines in the 2024/25 year

Managing deadlines is one of the most critical aspects of Corporation Tax compliance. For the 2024/25 year, the standard rules apply:

The Corporation Tax payment deadline is generally nine months and one day after the end of the accounting period. The CT600 return itself must be filed within 12 months of the end of the accounting period. These are two separate deadlines, and missing either can result in penalties and interest.

For example, if a start-up’s first accounting period ends on 31 March 2025, the Corporation Tax must usually be paid by 1 January 2026, while the CT600 must be filed by 31 March 2026. Start-ups should note that penalties can apply even if no tax is ultimately due.

It is also important to remember that statutory accounts must be filed with Companies House, typically within nine months of the accounting period end for the first year. While Companies House and HMRC filings are linked, they are separate obligations with different formats and requirements.

Preparing the necessary financial records

Accurate and complete financial records are the foundation of a successful first Corporation Tax return. Start-ups should maintain detailed bookkeeping from day one, even if trading activity is initially minimal.

Key records include sales invoices, purchase receipts, bank statements, payroll records, expense claims, and documentation for any assets purchased. Digital accounting software is widely used and can significantly reduce the administrative burden, especially as HMRC continues to encourage digital record keeping.

For the first Corporation Tax return, these records are used to prepare statutory accounts in accordance with UK accounting standards, usually FRS 105 or FRS 102 for small entities. The profit or loss shown in these accounts is then adjusted for tax purposes to arrive at taxable profits.

Understanding allowable expenses and reliefs

One of the most valuable aspects of Corporation Tax planning for start-ups is understanding allowable expenses and available reliefs. Allowable expenses are costs incurred wholly and exclusively for the purposes of the trade. These reduce taxable profits and, therefore, the amount of Corporation Tax payable.

Common allowable expenses for start-ups include office costs, software subscriptions, marketing expenses, professional fees, insurance, and travel costs. Salaries paid to employees and directors are also deductible, as are employer National Insurance contributions.

In addition to standard expenses, start-ups should be aware of specific reliefs that may apply. Research and Development (R&D) tax relief is particularly relevant for technology and innovation-focused start-ups. Even companies that are not yet profitable may be able to claim enhanced deductions or payable tax credits under the SME R&D scheme, subject to eligibility.

Losses in the first year and how they are treated

Many start-ups make a loss in their first year of trading, and this is entirely normal. From a Corporation Tax perspective, losses are not wasted. They can be carried forward to offset against future profits, reducing Corporation Tax liabilities in later years.

In some cases, start-ups may also be able to carry losses back to earlier periods, although this is less common for a first accounting period. For companies engaged in qualifying R&D, losses may be surrendered in exchange for a cash credit, providing a valuable source of early-stage funding.

Correctly recording and reporting losses in the first Corporation Tax return is essential to ensure they are available for future use.

The process of completing and filing the CT600

The CT600 is the formal Corporation Tax return submitted to HMRC. It summarises the company’s taxable profits, Corporation Tax calculation, and any reliefs or credits claimed. The CT600 must be submitted online and accompanied by iXBRL-tagged statutory accounts and computations.

For start-ups, this process can appear daunting, particularly for founders without a financial background. Many choose to use accounting software or engage a professional accountant to prepare and file the return. While this involves a cost, it can significantly reduce the risk of errors and provide reassurance that the return is compliant.

Directors are ultimately responsible for the accuracy of the return, even if it is prepared by an adviser. Taking the time to review and understand the figures is therefore strongly recommended.

Common mistakes made by start-ups

First-time Corporation Tax filers often make avoidable mistakes. One common issue is missing deadlines, particularly the payment deadline, which is earlier than the filing deadline. Another frequent problem is misunderstanding what counts as an allowable expense, leading to either over-claiming or under-claiming deductions.

Some start-ups also fail to register with HMRC promptly when they begin trading, which can delay the issuance of a notice to file and create confusion later. Poor record keeping is another recurring issue, making it harder to prepare accurate accounts and tax computations.

Being aware of these pitfalls and planning ahead can make the first Corporation Tax return a much smoother process.

Cash flow considerations and budgeting for tax

Cash flow management is critical for start-ups, and Corporation Tax should be factored into financial planning from an early stage. Even if tax is not payable in the first year due to losses or low profits, understanding potential future liabilities helps avoid surprises.

Setting aside funds for Corporation Tax once profits emerge is a prudent approach. Some start-ups choose to move an estimated tax amount into a separate savings account to ensure it is available when payment is due.

In the 2024/25 year, with higher Corporation Tax rates applying to larger profits, forecasting and budgeting become even more important as the business grows.

The role of professional advice

While it is possible for start-ups to manage their first Corporation Tax return самостоятельно, professional advice can add significant value. Accountants and tax advisers can help ensure compliance, identify reliefs, and provide strategic guidance tailored to the business.

For start-ups seeking investment, having professionally prepared accounts and tax returns can also enhance credibility with investors and lenders. The cost of professional support is often outweighed by the time saved and the reduction in risk.

Looking beyond the first return

The first Corporation Tax return sets the tone for future compliance. Establishing good habits around record keeping, deadline management, and tax planning will benefit the business as it scales.

Start-ups should view the first return not just as a compliance exercise, but as an opportunity to better understand their financial performance and tax position. This insight can inform decisions on pricing, investment, hiring, and growth strategy.

Final thoughts

Managing the first Corporation Tax return in the 2024/25 year is a significant responsibility for UK start-ups, but it does not need to be overwhelming. By understanding the rules, preparing accurate records, meeting deadlines, and seeking advice where appropriate, start-ups can navigate this process with confidence.

Getting it right from the outset helps avoid penalties, supports cash flow, and lays a strong foundation for future growth. For many founders, the first Corporation Tax return is a learning experience that contributes to building a more resilient and financially informed business.