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Corporation tax is the tax a limited company business needs to pay on its profits during a year.
You must pay Corporation Tax on profits from doing business as:
a limited company
any foreign company with a UK branch or office
a club, co-operative or other unincorporated association, eg a community group or sports club
You won’t receive a bill for Corporation Tax. There are specific things you must do to work out, pay and report your tax.
Register for Corporation Tax when you start doing business or restart a dormant business. Unincorporated associations must write to HMRC.
Keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.
Pay Corporation Tax or report if you have nothing to pay by your deadline - this is usually 9 months and 1 day after the end of your ‘accounting period’.
File your Company Tax Return by your deadline - this is usually 12 months after the end of your accounting period.
Your accounting period is normally the same 12 months as the financial year covered by your annual accounts.
What percentage tax will I pay?
The corporation tax rate has been 19% for all limited companies since April 2016.
Unlike individuals, companies don't receive any kind of tax-free allowance, and therefore all profits are taxable.
However, there are a number of expenses and deductions that can be claimed to reduce your bill.
How to register with HMRC
Once your company is incorporated, you must tell HMRC within three months of trading that a limited company has been formed.
When you register with HMRC, you'll need to include details of the following:
the date you began the business (this will be used as the start date of the company's first accounting period)
company name and registration number (this will be provided by Companies House when you incorporate)
the company's main address
type of business
the date you'll make your annual accounts up to
name and home address of the company directors
Which profits do I pay Corporation Tax on?
Taxable profits for Corporation Tax include the money your company or association makes from:
doing business (‘trading profits’)
investments
selling assets for more than they cost (‘chargeable gains’)
If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.
If your company isn’t based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.
What if there is no tax due?
Even if you have no corporation tax to pay, you'll still need to submit a company tax return.
When your payment is due, you'll receive payment reminders from HMRC unless you fill in the 'nil to pay' form.
How to pay Corporation tax?
The deadline for your payment will depend on your taxable profits.
Taxable profits of up to £1.5 million
You must pay your Corporation Tax 9 months and 1 day after the end of your accounting period. Your accounting period is usually your financial year, but you may have 2 accounting periods in the year you set up your company.
Taxable profits of more than £1.5 million
You must pay your Corporation Tax in instalments.
For payments on the same day/next day: CHAPS, online or telephone banking (Faster Payments)
Allow three working days: BACS, direct debit (if you've already set one up), online payment by debit or corporate credit card, at your bank or building society
Allow five working days: direct debit (if you've never set one up before).
Keep in mind that you can no longer pay with a personal credit card, so you'll need to have the funds available.
What if I stop or restart my business?
Check what you have to do if:
you’re not doing business and qualify as ‘dormant’
Are there penalties for late filing my Corporation Tax return?
Yes! Even if it is one day late, you will receive a £100 fine and then after 3 months, you will receive another £100 fine.
After 6 months, HMRC will estimate your Corporation tax bill and add a 10% penalty of the unpaid tax
After 12 months, another 10% of any unpaid tax will be added.
If your tax return is more than 6 months late
If your tax return is 6 months late, HMRC will write telling you how much Corporation Tax they think you must pay. This is called a ‘tax determination’. You cannot appeal against it.
You must pay the Corporation Tax due and file your tax return. HMRC will recalculate the interest and penalties you need to pay.
Fortune favours the organised!
If you pay your tax bill earlier than expected, HMRC will repay you some of it as interest at a rate of 0.5%. HMRC will usually pay interest from the date you pay your corporation tax up to the payment deadline.
However, the earliest it will pay interest is from six months and 13 days after the start of your accounting period.
Do you need help?
If you need help with your corporation tax to make sure you are not paying too much tax or accounts, contact me to arrange a quote or book one of our packages here:
