A fast guide to corporation tax for UK companies

Corporation Tax is a tax paid by businesses in the UK and is calculated on annual profits in a similar way to how income tax is calculated for individuals, however, companies don’t get an equivalent personal allowance – all profits are taxable – however, there are some expenses and deductions that can be claimed to reduce the bill. Since April 2016, the rate of Corporation Tax has been 19% for all limited companies

WHO SHOULD PAY CORPORATION TAX?

Once a year, a company tax return must be submitted – form CT600 – and this tax is payable by:

  • All UK limited companies
  • Members clubs
  • Societies and associations
  • Trade associations
  • Cooperatives

Sole traders and partnerships, however, instead pay income tax on profits via self-assessment

DO YOU NEED TO REGISTER WITH HMRC?

You must register with HMRC to tell them about incorporating your company within three months of starting trading. They’ll need the following bits of information:

  • When you started your business
  • Your company name and registration number
  • Your companies main address
  • The type of business it is
  • Your annual accounts period
  • The names and home addresses of the company director(s)

HMRC have an extensive explanation about how they define whether businesses are ‘active’, ‘trading’, ‘dormant’ or ‘non-trading’ so remember to check if you’re unsure

WHAT ARE THE CORPORATION TAX DEADLINES?

Corporation tax returns should be made after your companies year end and before your statutory filing date (The statutory filing date is either 12 months after the year end, or three months after your receive a notice to deliver a return from HMRC, whichever is latest). However, sometimes you may be required to pay your corporation tax before the return is due.

Up-to taxable profits of £1.5m, corporation tax should be paid within 9 months (and one day) after the end of your accounting year.

  • Accounting year ends is when your company’s financial period finishes
  • 9 months and 1 day later from that date, corporation tax is due (if profits are less than £1.5m)
  • 12 months later company tax return is due (unless HMRC sends a notice to deliver before that)

Businesses with a taxable income over £1.5m, corporation tax should be paid in instalments.

HOW DO I PAY CORPORATION TAX?

Your Corporation Tax bill should be paid by the deadline to avoid fines. Please also take into account bank holidays and weekends which may also reduce the amount of time you have to pay. As a rule-of-thumb:

  • Paying by direct debit needs at least 5 working days for new payments
  • Allow 3 working days for BACS payments or direct debit payments (if they’re already in place) or 5 working days for a new direct debit payment
  • Allow 3 working days for over-the-counter payments by debit card or business credit card

Payments from personal credit cards are no longer accepted

WHAT ARE THE PENALTIES FOR LATE PAYMENTS?

  • One day – £100 fine
  • Three months – another £100 fine
  • Six months late – HMRC will estimate your bill and add a 10% penalty onto what it thinks your unpaid tax will be.
  • 12 months late – another 10% is added to your estimated tax bill.

HMRC may also carry our enforcement of debts and may also close down your business. The advice from HMRC is to contact them immediately if you’re unable to pay.

There are also potentially fines for inaccurate information

CAN I REDUCE MY CORPORATION TAX BILL?

You should seek the advice of an experienced accountant to make sure your corporation tax bill is accurate and your neither paying too much or too little. Here are the main factors to take into consideration:

  • Have you accurately claimed all your allowable expenses? Many costs incurred solely for the business can be claimed such as some travel costs, computers, tea and other things specific to your industry.
  • Have you paid yourself a salary? Your salary is a business expense along with NI contributions the company makes on your behalf. However, income tax will still need to be made for these earnings
  • Are you able to make early corporation tax payments to HMRC? HMRC may repay some interest on early payments provided they meet the criteria

HOW DO I FIND OUT MORE?

For more information, please get in touch with Millhouses Accountancy on Sheffield 0114 345 0960 or Nottingham 0115 882 0356

Millhouses Accountancy