Coporation Tax explained
If you're a limited company or an unincorporated body,
such as a club, society or association, then you need to pay
Corporation Tax. It's important because if you fail to pay, you
could be fined daily by HMRC. Here's our guide to make sure that
doesn't happen to you.
WHAT IS IT?
Corporation Tax is a tax on taxable profits. If your company or
organisation is based in the UK, you have to pay Corporation Tax on
all your taxable profits - even if these profits have come from
selling product abroad.
However, If your company isn't based in the UK but operates
here- for example through an office or branch - you only have to
pay Corporation Tax on any taxable profits arising from your UK
activities.
WHAT DO I NEED TO DO?
There are three things you need to complete in order to pay
Corporation Tax. Each of these points have different deadlines
- Tell HMRC your business is liable for Corporation
Tax
You need to do this within three months of starting a limited
company. To make HMRC aware of your company, you need to fill in
form CT41G.
- Pay the right amount of Corporation Tax on
time
HMRC calls this the 'normal due date', but your actual payment
deadline can vary depending on how much taxable profit your company
or organisation makes.
One thing to remember is the deadline is always before the
deadline for filing your Company Tax Return.
If your company's taxable profits are £1.5million or less, you
must pay your Corporation Tax nine months after the end of your
financial year.
So, if like most small businesses, if your financial year ends
on the 31 March, your Corporation Tax payment is due on or before
31 December.
If you pay late, you'll have to pay interest on what you
owe.
If your company's profits for an accounting period are at more
then £1.5million a year then you have to pay your Corporation Tax
in instalments.
- File a Company Tax Return and supporting
documents
You must file your company or organisations tax return- which
includes a Company Tax Return form and supporting documentation
within 12 months of the end of your financial year.
Your Company Tax Return filing deadline is known to HMRC as your
'statutory filing date'. If you file your return late your
company or organisation will be charged an automatic penalty, even
if it does not owe any Corporation Tax.
HOW MUCH DO I NEED TO PAY?
To work out your taxable profits, you start with your company's
pre-tax profit for the financial year. You then:
- Add back any depreciation charges you've included in your
accounts
- Deduct your capital allowances (they take the place of
depreciation charges)
- Add any other relevant income or chargeable gains
- Deduct any other relevant deductions, reliefs, allowances or
losses
Next:
- Apply the relevant tax rate(s) to calculate your gross
Corporation Tax payable
- Deduct any relevant tax credits and any Income Tax already
deducted from interest income your company received (for example
the tax deducted by your bank before it paid you interest)
Finally you deduct any Corporation Tax you've already paid, for
example tax paid early, to find the amount of Corporation Tax you
need to pay, or the amount of Corporation Tax you can claim back as
an overpayment.
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