Wondering if you need to pay corporation tax? Find out below:
What Is Corporation Tax?
Corporation Tax works in a similar way for businesses as income tax does for individuals. It is based on the annual profits of a limited company and includes:
- Trading profits
- Selling assets
If a company is based in the UK but also trades abroad, it will pay Corporation Tax on all profits.
If the company is based abroad, it will only pay Corporation Tax on profits made from UK activity.
The current Corporation Tax main rate for 2023 is 25% for profits that exceed £250,000.
The Corporation Tax small profits rate is set at 19% for companies that have profits below £50,000.
Who Pays Corporation Tax?
Corporation tax is paid by limited companies. The company director is legally obliged to pay Corporation Tax on the limited company’s annual profits.
Other organisations that may need to pay Corporation Tax include:
- Members’ clubs
- Housing associations
- Trade associations
Registering a Limited Company with HMRC
HMRC must be notified within three months that you have formed a limited company and started trading.
The information needed to register with HMRC includes:
- Business start date
- Company name
- Company registration number
- Business address
- Business type
- Annual accounts date
- Company directors’ names and addresses
Who Calculates The Corporation Tax Bill?
Companies are required to calculate their own Corporation Tax bill. This can be done using specialist software or by employing an accountant to ensure your figures are correct.
Tax returns must be filed every year. The Corporation Tax return is the CT600 and accounts must be filed with both Companies House and HMRC.
CT600 is an online form and can only be submitted on paper with a justifiable reason.
The CT600 Corporation Tax return must contain:
- The company name
- The company’s registration number
- Tax reference number
- Registered office
- Turnover for the reported period
- Profit for the reported period
- Tax calculation
- Allowance and relief details
Should I still complete a company tax return if no tax is due?
Companies must submit a company tax return even if there are no taxable profits.
An additional “nil to pay” form must be completed.
Dormant companies must be declared to HMRC. HMRC will issue you with a letter if they agree the company is dormant. The letter will confirm that no Corporation Tax is due and you do not have to file your company tax returns.
When is the Corporation Tax deadline?
If you are paying Corporation Tax in the UK, your deadline will be nine months and one day after the company’s accounting period.
The company will determine their own accounting period which is typically the same as the financial year.
How is the UK Corporation Tax rate determined?
The company’s profits will determine how much Corporation Tax is due. Different tax rates are determined by the business profits.
The Corporation Tax threshold is met as soon as you start making a profit and tax must be paid on this.
Why does Corporation Tax have to be filed on time?
Failure to file your Corporation Tax return on time will result in financial penalties.
Missing the deadline by one day will result in a £100 charge. An additional £100 charge will be added if the tax return is not filed within 3 months of the deadline.
Companies that fail to file Corporation Tax returns within 6 months of the deadline will have to pay a 10% penalty on what is due. Failure to file within 12 months will result in an additional 10% being charged.
Fines of £100 will be increased if a Corporation Tax return is filed late three times in a row. The new charge would be £500.
Failure to pay will also result in interest being added to the sum due. HMRC may pursue other avenues to recoup what is owed.
Limited companies pay Corporation Tax on profits. The Corporation Tax rate can vary depending on the amount of profit a company makes.
It is essential the Corporation Tax returns are filed on time and are accurate. Failure to do this can lead to financial penalties.
Employing an experienced accountant will ensure your taxes are filed on time. They will also have a better idea of Corporation Tax reliefs that can help reduce bills.