What Is Corporation Tax?
If your business is a limited company, you need to pay corporation tax on the profits you make throughout the financial year. This could refer to business profits or financial gains made from selling off assets, such as property, land, or shares.
As soon as you set up your business for trading, you are legally obliged to register for HMRC corporation tax. You can register for corporation tax by signing in to your business tax account on Gov.uk.
You are solely responsible for paying the correct amount of tax. You need to keep on top of your company accounts and submit a Company Tax Return within the deadline.
How Much Will I Have To Pay?
How much corporation tax you must settle depends on your level of profit.
As was announced in Budget 2021, tax rates were changed in April of 2023.
Small companies that make an annual profit of £50,000 or below have to pay 19% corporation tax.
If your company makes between £50,000 and £249,000, you’ll have to pay 25%.
Bear in mind: corporation tax is the amount of profit you have left after you’ve deducted overhead payments.
Corporation Tax Deadlines
Just like the amount you’ll have to pay in corporation tax, the deadline by which you must settle the bill depends on how much profit you make.
If you make £1.5 million or below in taxable profits, you’ll have to pay within nine months and one day after the end of your accounting period.
For example, if your account period ends on the 31st of March, you’d have to settle your corporation tax bill by the 1st of January.
If you make over £1.5 million in taxable profits, you must also pay within nine months and one day after the end of the accounting period. However, you may have to settle your corporation tax bill in instalments.
What happens if you miss the deadline?
If you miss your deadline, HMRC will charge you interest.
Paying Corporation Tax
To pay your corporation tax, you must first file your company tax return with HMRC. You’ll then be sent a payslip by HMRC, which will include a 17-digit pay reference.
There are several options when it comes to paying corporation tax. The method you choose should be based on how long you’ve got to go before the deadline. If the end of your accounting period was long ago, opt for a quick payment option.
Same day payments
You can pay your corporation bill immediately via online or telephone banking or CHAPS.
Most online banks support same-day payments to HMRC. However, you’ll need to find out which HMRC to make the payment to. Your corporation tax payslip will state which one to pay – either HMRC Cumbernauld or HMRC Shipley.
Three working day payments
Three-day payments can be done via online payments, BACS bank transfers, or direct debit.
Alternatively, three-day payments can be done in person at a bank, building society, or at the post office. If you do it in person, you must take your tax bill payslip.
Five working day payments
Lastly, you can pay income tax over five working days by setting up a new direct debit. This should only be done if there is still plenty of time before the corporation tax deadline.
Do Partnerships And Sole Traders Pay Corporation Tax?
If you are a sole trader or operating as a partnership, you aren’t obliged to pay corporation tax. Instead, you pay capital gains tax for profits made from selling assets, and income tax on business profits.
Do Companies With Branch Offices In The UK Pay Corporation Tax?
Corporation tax is designed to tax trade that takes place within the UK.
If you’re an international company but have offices in the UK, you must pay corporation tax on the profits you make from UK business and trading.
Corporation tax comes out of your limited company’s profits after the end of your accounting period. You can pay this bill online or via telephone banking, CHAPS, BACS, direct debit, or through a bank or building society.
Hiring an accountant is advisable if you need assistance with your business tax planning.