CT600 preparation: practical UK guide to corporation tax returns for startups

Foundational Understanding: The What, Why, and When of Corporation Tax

For founders of UK startups, the end of a financial year brings a dual challenge: closing the books and facing the Corporation Tax return. This guide provides a practical walkthrough of how to file your Corporation Tax return in the UK, designed to demystify the CT600 process for leaders in SaaS, Biotech, and other tech-focused industries. It focuses on translating accounting figures from tools like Xero into the specific format HMRC requires, ensuring compliance without derailing your core business mission. You can track these recurring tasks in our Reporting Obligations hub.

With limited finance resources and a primary focus on growth, navigating the complexities of the CT600 form can feel like a significant hurdle. This guide breaks the process down into manageable stages, from data gathering to final submission.

Understanding the CT600 Form

Before diving into calculations, it is essential to understand the basic rules. The CT600 is the standard form UK companies use to report their income and calculate their Corporation Tax liability to HMRC. Think of it as the official summary of your company’s financial performance for tax purposes. Its primary goal is to determine your taxable profit, which is often different from the profit shown on your management accounts because of specific tax rules, adjustments, and reliefs.

Critical Corporation Tax Deadlines UK Startups Must Know

Understanding the deadlines is one of the most critical aspects of small business tax filing in the UK. There are two separate dates to manage, and confusing them can lead to automatic penalties and interest charges. You must get both right for effective UK startup tax compliance.

First is the filing deadline. Your company tax return is due 12 months after your company's accounting period ends. This is the final date by which HMRC must receive your completed CT600 form and supporting accounts.

Second, and more urgent, is the payment deadline. The deadline to pay your Corporation Tax bill is 9 months and one day after your company's accounting period ends. The practical consequence tends to be that you must estimate and pay your tax liability three months before you are legally required to file the detailed return that confirms the final figure. Missing this payment deadline results in HMRC charging interest on the outstanding amount. See the annual filing calendar for related corporate deadlines.

Step 1: Marshalling Your Data (The "Input" Phase)

An accurate CT600 return starts with organised and complete financial records. This input phase is about gathering the necessary CT600 supporting documents before you begin any calculations. For most pre-seed to Series B companies using accounting software like Xero, the process starts with finalising your accounts for the period.

Core Financial Reports

Your primary sources will be the standard reports from your bookkeeping system.

• Finalised Profit & Loss (P&L) Statement: This shows your income and expenditure over the accounting period. It provides the initial 'accounting profit' figure, which is the starting point for your tax calculation.
• Finalised Balance Sheet: This details your company’s assets, liabilities, and equity at the end of the period. It is crucial for identifying assets you have purchased, such as laptops or machinery, so you can calculate capital allowances.
• Detailed Nominal Ledger or General Ledger: This report gives a full transaction list for every account. It is vital for identifying specific non-deductible expenses that need to be 'added back' to your profit.

Essential Supporting Evidence

In addition to these core reports, you should have the following documentation to hand:

• Asset Purchase Invoices: For any significant capital purchases, you will need the invoice to prove the cost and date of acquisition when you claim capital allowances.
• Payroll Records (P11s): These are essential for confirming staff costs, which are typically a major deductible expense. They are also critical for supporting any R&D tax credit claims that involve employee time. See our guide on UK Payroll Reporting.
• R&D Project Records: For Biotech and Deeptech startups, detailed records of qualifying research and development projects are non-negotiable. This includes documentation of staff time allocation, consumables used, and any subcontractor costs.

Getting this data organised upfront transforms the rest of the process from a forensic investigation into a structured assembly task. It directly addresses the challenge of knowing which figures to extract from your books.

Step 2: Following the Corporation Tax Calculation Steps

This is the core of your UK corporation tax preparation. You must adjust your accounting profit to arrive at your taxable profit. This is the figure HMRC uses to calculate your tax bill. The process involves adding back non-deductible expenses and subtracting eligible tax reliefs.

The Concept of 'Add-Backs'

Not every expense recorded in your P&L is deductible for Corporation Tax purposes. These disallowed expenses must be 'added back' to your accounting profit, effectively increasing it for tax purposes. Common examples for startups include:

• Client Entertainment: Any costs related to entertaining clients, such as meals or events, are not tax-deductible.
• Depreciation: Your accounting software automatically calculates depreciation on assets. For tax, this figure is ignored and must be added back. It is replaced by a different system called Capital Allowances.
• Legal Fees for Capital Purposes: Legal fees related to capital transactions, such as fundraising rounds or acquiring another business, are generally not deductible against profits.
• Fines and Penalties: Any penalties, for example from HMRC for late filing or from Companies House, cannot be deducted as a business expense.

Capital Allowances vs. Depreciation

Instead of accounting depreciation, HMRC allows you to deduct a portion of your asset costs through a system called Capital Allowances. The most significant of these for startups is the Annual Investment Allowance (AIA). The AIA allows a business to deduct up to 100% of the cost of qualifying assets in the year of purchase, up to a £1 million limit. For a SaaS company buying new servers or an E-commerce business investing in warehouse equipment, this provides a powerful, immediate tax deduction that can significantly reduce a tax bill.

R&D Tax Relief: A Critical Lever for Tech Startups

For innovative companies, R&D tax relief is the single most important adjustment. Under the SME R&D scheme, profitable companies can deduct an additional 86% of their qualifying R&D expenditure from their taxable profit. This significantly reduces the tax bill and rewards investment in innovation.

For pre-revenue Biotech or Deeptech startups, the benefit is even more direct. Loss-making SMEs can choose to surrender their R&D-enhanced loss for a cash tax credit from HMRC, payable at a rate of 10%. This turns a tax relief into a source of non-dilutive funding, which is vital for extending runway and continuing development. This is a crucial mechanism for early-stage technology businesses.

Worked Example: Deeptech Startup Ltd

Consider a Deeptech startup with a pre-tax loss. Here is a step-by-step breakdown of how its taxable loss is calculated:

1. Starting Point: The company's P&L statement from Xero shows an accounting loss of £150,000.
2. Add Back Non-Deductibles: The P&L includes £15,000 for depreciation and £5,000 for client entertainment. Both must be added back to the loss, resulting in an adjusted loss of £130,000.
3. Deduct Capital Allowances: The startup purchased new lab equipment this year for £20,000. Using the Annual Investment Allowance, the full amount is deducted. The loss now returns to £150,000.
4. Account for R&D Relief: The company incurred £200,000 in qualifying R&D expenditure, primarily on staff costs and project consumables. Under the SME scheme, it can deduct an additional 86% of this spend, which is £172,000.
5. Final Taxable Loss: Deducting the additional R&D relief from the £150,000 loss results in a final taxable loss of £322,000. This is the final figure for the CT600.

In this scenario, because the startup is loss-making, it can surrender this loss to claim a payable tax credit from HMRC, providing a valuable cash injection.

Step 3: How to File a CT600 and Pay HMRC

Once your taxable profit or loss is calculated, the final stage is to formally prepare and submit the return. Knowing how to file a CT600 involves technical requirements that must be met to avoid rejection by HMRC's systems.

The iXBRL Filing Requirement

The most important technical rule is the filing format. Your statutory accounts and tax computations must be filed online in the iXBRL (Inline eXtensible Business Reporting Language) format. This is a machine-readable format that allows HMRC's computers to automatically process and analyse the data. Standard accounting software like Xero cannot produce this submission-ready file on its own. To comply, you will need to use one of three options:

• HMRC’s free software (only suitable for very simple, straightforward returns).
• Commercial tax filing software that can convert your accounts into iXBRL.
• An accountant, who will use their professional software to handle the conversion and filing.

Making Payment Correctly

After filing, you must ensure payment is made by the deadline. All Corporation Tax payments must be made electronically and accompanied by a unique 17-digit payment reference number. This number is specific to the accounting period you are paying for. Using the wrong reference is a common error and can cause significant delays, as HMRC's systems may not be able to allocate your payment correctly. This can lead to them mistakenly issuing late payment notices and charging interest. You can find the correct reference number in your company’s online HMRC account.

DIY Filing vs. Professional Advice for UK Startups

Successfully navigating your first few Corporation Tax returns sets a foundation for future financial rigour. It is less about a single submission and more about building a compliant and efficient system.

Key distinctions to embed in your process are:

• Filing Deadline vs. Payment Deadline: The payment is due three months before the filing. Mark both in your calendar to avoid penalties.
• Accounting Profit vs. Taxable Profit: Your P&L is the start, not the end. The adjustments for reliefs and add-backs are what determine your tax liability.
• Depreciation vs. Capital Allowances: Remember to add back accounting depreciation and deduct the more generous capital allowances like AIA instead.

For founders contemplating a DIY approach versus hiring a professional, the decision hinges on complexity and risk. If your company has very straightforward accounts with no R&D activity, capital assets, or international elements, DIY filing with dedicated software might be feasible. However, for most SaaS, Biotech, and Deeptech companies, the value of correctly calculating and claiming R&D tax relief often far exceeds the cost of professional advice. An error in an R&D claim can trigger HMRC scrutiny and jeopardise valuable cash credits. Investing in expertise here is an investment in maximising your non-dilutive funding and ensuring compliance from day one. Refer to the Reporting Obligations hub for a full compliance calendar.

Frequently Asked Questions

Q: What are the penalties for missing corporation tax deadlines in the UK?
A: Missing the filing deadline results in an automatic £100 penalty, which increases if the return is more than three months late. Missing the payment deadline results in HMRC charging interest on the unpaid tax from the date it was due. Both penalties can escalate over time, making punctuality essential.

Q: What is iXBRL and why is it required for a CT600 submission?
A: iXBRL is a digital reporting format that tags financial data, making it machine-readable. HMRC mandates it for CT600 filings because it allows for automated data collection and analysis, improving efficiency and risk assessment. You cannot file your return without converting your accounts and computations to this format.

Q: Can I file my own Corporation Tax return without an accountant?
A: While it is possible for very simple businesses using HMRC's free software or commercial tools, it is often not advisable for startups. If your business has any complexity, such as R&D tax credits, capital allowances, or losses, an accountant can help ensure you remain compliant and maximise any available tax reliefs.