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 has 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 fiscal 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.

This article is in association with

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