Corporation tax implications of incorporation

Copyright © 2026 LexisNexis
Produced by Tolley in association with Julie Butler
Owner-Managed Businesses
Guidance

Corporation tax implications of incorporation

Copyright © 2026 LexisNexis
Produced by Tolley in association with Julie Butler
Owner-Managed Businesses
Guidance
imgtext

The Incorporation ― introduction and procedure guidance note summarises various tax implications of incorporating a business including details of forming the new company. This note provides further details of the corporation tax aspects of incorporation.

Charge to corporation tax

The company will pay corporation tax on its profits. For most sole traders there should be a significant reduction in the tax charged on the business profits compared with income tax and NIC. This is discussed further in the Calculating the tax benefits of incorporation guidance note.

There is no income tax on ‘undrawn’ profits in a company. In contrast, sole traders pay income tax on the profits of the business, irrespective of the level of their personal drawings.

Dividends are not deductible expenses in computing the company’s profits, but salary and related NIC payments are. For details, see the Allowable deductions for employee related expenses guidance note.

For information on corporation tax computations, see the Computation of corporation tax guidance note.

Duty to give notice of chargeability to corporation tax

A company

Continue reading the full document
To gain access to additional expert tax guidance, workflow tools, generative tax AI, and tax research, register for a free trial of Tolley+™
TAKE A FREE TRIAL NOW
Julie Butler
Julie Butler linkedinicon twittericon

Managing Partner at Butler & Co Chartered Accountants & Registered Auditors 

Julie Butler FCA is the founding director of Butler & Co Chartered Accountants, a firm that specialises in agricultural and land matters. Julie has lectured extensively on proactive tax planning for farmers and landowners, with an emphasis on diversification and development.Julie and her team provide tax consultancy services direct to the farming and equine industry and to other accountants, land agents and solicitors on farming diversification, bloodstock and all areas of the equine world.Julie's articles are published in the national accountancy and tax press and she is the author of the successful books Tax Planning for Farm and Land Diversification and Equine Tax Planning as well as being co-author of Stanley: Taxation of Farmers and Landowners with Malcolm Gunn. Julie is also editor of Farm Tax Brief and contributes to Tolley's Tax Planning.Julie is an authorised individual licensed by the ICAEW to carry out the reserved legal activity of non-contentious probate in England and Wales.

Read moreRead more
Powered by Tolley+™
  • 24 Oct 2025 07:30

Home/ Tolley Tax Guidance/ Owner-Managed Businesses / Starting in business and incorporation

Popular Articles

Corporation Tax

Group relief for carried-forward losses

Group relief for carried-forward lossesThis guidance note examines in detail the relief available to groups for carried-forward losses. The scope excludes the treatment of specialist businesses such as banks, insurance companies and oil and gas companies.From 1 April 2017, companies can surrender

14 Jul 2020 11:50 | Produced by Tolley Read more Read more
Trusts and Inheritance Tax

Spouse exemption from inheritance tax

Spouse exemption from inheritance taxArguably, the most important inheritance tax exemption is the spouse exemption from inheritance tax.There is no IHT to pay on gifts from husband to wife and vice versa, or from one civil partner to the other (referred to collectively in this note as ‘spouses’).

14 Jul 2020 13:56 | Produced by Tolley in association with Emma Haley at Boodle Hatfield LLP Read more Read more
Personal Tax

Self assessment ― amendments and corrections

Self assessment ― amendments and correctionsOnce a self assessment tax return has been filed, both HMRC and the taxpayer (or the agent) has the right to make changes to the return. There are different time limits depending on whether it is a correction by HMRC or an amendment made by the

14 Jul 2020 13:37 | Produced by Tolley Read more Read more