Taxation (UK) · The scope of corporation tax

Companies Within the Charge to Corporation Tax

Updated 11 October 2026 · Fact-checked

Corporation tax is charged on the profits of companies. A UK resident company is taxed on its worldwide profits. A non-UK resident company is within corporation tax on the profits attributable to a UK permanent establishment through which it trades. Individuals and partnerships are not within corporation tax. Their owners pay income tax or capital gains tax.

Understand Companies Within the Charge to Corporation Tax

Tax is charged on the person who makes the profit. In the UK, individuals pay income tax and capital gains tax. Companies pay corporation tax. A company is a separate legal person, so its profits are taxed in the company, not in its shareholders' hands.

A company for this purpose means a body corporate, such as a limited company. Corporation tax also extends to unincorporated associations, such as clubs and societies. It does not apply to partnerships, or to local authorities and local authority associations. A partnership is not a separate taxpayer. Each partner is taxed on their own share of the profits, as an individual under income tax, or as a company under corporation tax if the partner is a company.

The scope depends on residence. A UK resident company is within corporation tax on its worldwide profits. This includes trading profits, property income, interest and gains, wherever they arise. A company incorporated in the UK is UK resident. A company incorporated abroad is UK resident if its central management and control is in the UK. You apply these two tests in the exam. Reason from the facts you are given. Do not memorise a long list.

For TX-UK, a non-UK resident company is within corporation tax on the profits attributable to a UK permanent establishment (PE), such as a branch or fixed place of business, through which it trades. These include the PE's trading profits and chargeable gains on UK assets used by the PE. A non-resident company with no PE that has UK property income is within income tax, not corporation tax. TX-UK questions on non-resident companies concentrate on a UK permanent establishment.

Remember the difference in rates and bands. The ACCA tax tables for the Finance Act 2025 give company rates: a small profits rate of 19% and a main rate of 25%, with marginal relief between profits of £50,000 and £250,000. Individuals use the income tax bands instead. Do not mix the two.

Key rules to remember

UK resident company: Taxed on worldwide profits; A company incorporated in the UK is UK resident. A company incorporated abroad is UK resident if its central management and control is in the UK.
Non-UK resident company: Within corporation tax on profits attributable to a UK permanent establishment; This includes the PE's trading profits and chargeable gains on UK assets used by the PE. With no UK PE, UK property income is within income tax, not corporation tax.
Partnerships and individuals: Not within corporation tax; Partners and individuals pay income tax and capital gains tax. A corporate partner is taxed under corporation tax on its share.
Corporation tax rates (FA 2025 tables): Small profits rate 19%; main rate 25%; limits £50,000 and £250,000; Given in the exam tax tables. Marginal relief applies between the limits.

How to solve Companies Within the Charge to Corporation Tax questions

Use this method for any question asking whether an entity is within corporation tax and what is taxed.

1Identify the type of entity: individual, partnership, limited company, or other body.
2If it is an individual or a partnership, state that it is outside corporation tax and name the tax that applies instead.
3If it is a company, test UK residence. A company incorporated in the UK is UK resident. If it is incorporated abroad, it is UK resident only if its central management and control is in the UK.
4If UK resident, conclude that worldwide profits are within corporation tax.
5If not UK resident, check whether it trades in the UK through a permanent establishment.
6If there is a PE, the profits attributable to it are within corporation tax. If there is no PE, the company is not within corporation tax on its trading profits, and any UK property income is within income tax instead.
7Write a short conclusion that names the taxable profits and the tax that applies.

Quickest way: Three-question check

When to use it: Use this for objective test questions where you have about three minutes.

Is it a company? If it is a person or partnership, it is not in corporation tax.
Is it UK resident (UK incorporated, or managed and controlled in the UK)? If yes, worldwide profits.
If not resident, is there a UK permanent establishment? If yes, the profits attributable to the PE are within corporation tax. If no, it is outside corporation tax, and UK property income is taxed under income tax.

Common mistakes in Companies Within the Charge to Corporation Tax

Saying a partnership pays corporation tax.
Students see a business with a name and treat it like a company.
Fix: A partnership is not a separate taxpayer. Partners are taxed on their shares.
Taxing a non-resident company on its worldwide profits.
The worldwide rule for resident companies is overapplied.
Fix: Only UK resident companies have worldwide profits taxed. Non-residents are taxed on UK PE profits.
Deciding residence only on where directors live or where the company trades.
Students do not know the tests.
Fix: Use UK incorporation, or central management and control in the UK.
Using income tax bands for a company.
Both taxes appear in the same paper.
Fix: Companies use 19% and 25% with marginal relief, not the bands for individuals.
Treating shareholders as taxed on company profits.
Students ignore the company as a separate person.
Fix: The company pays corporation tax. Shareholders pay income tax only when they receive dividends.

Worked examples

Example 1

Alpha Ltd is incorporated in the UK and has an overseas branch. Beta Partners is a partnership of two individuals. Which are within corporation tax, and on what profits?

Show the solution

Alpha Ltd is a company incorporated in the UK, so it is UK resident.
A UK resident company is taxed on worldwide profits, so the overseas branch profits are included.
Beta Partners is a partnership, not a company, so it is outside corporation tax.
The two partners are taxed under income tax on their shares of profits.

Answer: Alpha Ltd is within corporation tax on its worldwide profits, including the overseas branch. Beta Partners is outside it. Its partners pay income tax.

Example 2

Gamma Inc is incorporated abroad, and its central management and control is outside the UK. It trades in the UK through a branch that is a permanent establishment. Is it within corporation tax?

Show the solution

Test residence. Gamma is not UK incorporated, and its central management and control is outside the UK, so it is not UK resident.
A non-resident company is within corporation tax if it trades in the UK through a permanent establishment.
The UK branch is a permanent establishment, so the condition is met.
The profits attributable to the UK branch are within corporation tax. Its other overseas profits are outside.

Answer: Gamma Inc is within corporation tax on the profits attributable to its UK permanent establishment.

Exam tips

In objective tests, first decide if the entity is a company. Partnerships and individuals are a common wrong-answer trap.
Write the residence test in one line: incorporation or central management and control.
For non-residents, always mention the permanent establishment, and say that the profits attributable to it are within corporation tax.
Do not quote rates unless asked. If needed, the 19% and 25% rates and the £50,000 and £250,000 limits are in the tax tables.

Practice questions from The scope of corporation tax

Companies Within the Charge to Corporation Tax: frequently asked questions

Who is liable to corporation tax?

Companies are liable, including UK resident companies on worldwide profits. Non-resident companies are liable on profits of a UK permanent establishment. Individuals and partnerships are not.

What makes a company UK resident?

A company incorporated in the UK is UK resident. A company incorporated abroad is UK resident if its central management and control is in the UK.

Do partnerships pay corporation tax?

No. A partnership is not a separate taxpayer. Each partner is taxed on their share of profits, under income tax if an individual.

What is the difference between income tax and corporation tax for companies?

Companies pay corporation tax, not income tax, on their profits. Corporation tax uses the company rates of 19% and 25% with marginal relief. Income tax applies to individuals using bands and allowances.