All You Need to Know about Corporation Tax

The very step in learning about corporation taxis to obtain a comprehensive understanding of what it means. Businesses in the UK pay corporation tax, which is the equivalent of income tax that is paid by individuals. To learn pertinent information about corporation tax in the UK, continue reading.

A basic overview of corporation tax

As mentioned already, businesses in the UK pay corporation tax just like individuals pay income tax. The corporation tax amount that a business has to pay is calculated on the annual profit incurred by the business. In the UK, the corporation tax rate for limited companies is 19%, since April 2016. Before April 2016, the corporation tax rate was dependent on a company’s annual profit.

Unlike individuals, companies are not eligible for receiving tax-free allowances of any kind. Thus, profits made by companies are taxable. However, in the UK, there are several deductions and expenses that a company can claim to reduce the tax liability. For this, a company tax return form (CT600) has to be submitted to HMRC annually.

Who pays corporation tax?

Here is a list of organizations that have to pay corporation tax:

• UK limited companies
• Societies, members clubs, and associations.
• Individuals who are carrying out businesses in groups (co-operatives)
• Housing associations
• Trade associations

Exception:

In the UK, partnerships and sole traders don’t pay corporation tax. Instead, such individuals have to pay income tax on their profits through a self-assessment tax return.

The company director is responsible for the timely payment of corporation tax even if an accountant is hired by the company for preparing calculations.

Registration with HMRC

Firstly, it is mandatory to inform HMRC within 3 months of the incorporation of your company.  To ensure tax compliance, you have to register your business under the appropriate category provided by HMRC. These categories include:

• Active
• Non-trading
• Trading
• Dormant

The following details of your business must be included when registering with HMRC:

• The start date of the business’s first accounting period
• Registration number and company name (provided by the Companies House upon incorporation)
• The main address of the company
• Business type
• Home address and name of company directors
• The date for your annual accounts

Filing the company tax return

It is the responsibility of a company to calculate its tax return. Apart from that, every company in the UK is also responsible for completing a company tax return every year (referred to as form CT600). The company’s accounts have to be filed to Companies House as well as HMRC.

The form CT600 must be filed online. The exception to this rule is a plausible reason for filing a paper form or filing the return in Welsh.

The following information must be provided while filing your CT600:

• Company name
• Company registration number
• Registered office
• Tax reference number
• Tax calculation
• Details of reliefs and allowances
• Profit and turnover for the reported period

Important points to remember for paying corporation tax

• There are various methods to pay corporation tax. Irrespective of the chosen method, the tax should be received by HMRC by the corporation tax deadline date.
• In case the deadline date for your company is on a bank holiday or weekend, HMRC must receive the payment within the last working day prior to the deadline date.
• Corporation tax payments cannot be made using personal credit cards so it is important to have the required funds available.

The ways in which corporation tax bills can be reduced

• Claim your allowable expenses
• Early payment of corporation tax to HMRC
• Pay yourself a salary through dividends

Corporation tax deadlines

Here are some important points to remember regarding corporation tax deadlines:

• A corporation tax return in the UK has to be submitted between the company’s statutory filing date and company year-end date.
• The statutory filing date is usually either 3 months after a company receives a notification to deliver the return from HMRC or 12 months post year-end (whichever is the latest).
• It is important to remember that there may be a requirement to pay your company’s corporation tax bill prior to receiving a notification to deliver your company’s return.
• Companies need to pay corporation tax within 9 months and 1 day after their accounting year-end if they’ve made taxable profits upto £1.5m.
• Businesses with turnovers higher than £1.5m are required to pay their corporation tax in instalments.

Late penalties: Corporation tax

HMRC has the power to charge your company with a fine in any of the following scenarios:

• Late tax returns
• Late corporation tax payments
• Inaccurate information

Here’s all the vital information about corporation tax. Hope it will help you be well-versed with this tax and make due payments on time.