What is Corporation Tax?

what is corporation tax and who pays it

If you setup a UK limited company you will need to pay corporation tax. This is different to personal tax paid by individuals based on their self assessment tax returns, and a company needs to file a CT600 corporation tax return each year.

Corporation tax is paid by limited companies in the UK, and is calculated based on their annual profits. This means that as soon as your business starts to make a profit, they need to pay corporation tax. The current rate of corporation tax rate is set at 19% for all limited companies.

If you are a limited company and want to know more about how corporation tax works, what expenses are tax deductible and which allowances you can make use of to help reduce your tax liability, then read on to discover more…

What is corporation tax and who pays it?

Corporation tax has to be paid by all UK limited companies and some other businesses such as housing associations, membership organisations, clubs and societies and co-operatives and is payable based on the profit made in a given year.

Corporation tax is payable by the company, 9 months and 1 day after the company’s year end. Sole traders and partnerships do not have to pay corporation tax, instead they have to fill out a tax return and apply income tax to their earnings.

How do I calculate corporation tax?

The current corporation tax rate is 19%, but this is likely to increase in the coming years.

Unfortunately calculating your corporation tax can be complicated, and it’s not as simple as taking 19% of your profit from your accounts, as there are often things in your accounts that are treated differently for corporation tax purposes.

Corporation tax rules are changing all the time, so it is always best to seek advice from a professional, contact us at Ascott Blake on how to calculate it. We can also advise on the most tax efficient ways of drawing money from your limited company, as these can change over time.

There are lots of ways to help reduce your corporation tax liability with things such as Capital Allowances, which give you relief for larger items that you may have purchased through the business such as plant and machinery.

When should I pay corporation tax?

A limited company pays corporation tax nine months and 1 day after the accounting year end. But be careful if this is your first year of accounts, as there will often be a long period and two separate tax returns with two different dates for payment.

Don’t worry, as at Ascott Blake we like to do these things nice and early for you. Plus we always aim to let you know your corporation tax liability well in advance of any deadlines, after all there’s nothing worse than getting a surprise tax bill!

Do I pay corporation tax if I make a loss?

If the company makes a loss, then you don’t normally pay corporation tax, and you can also carry these losses back to the previous year to obtain a refund if you made profits in the prior year.

Alternatively you can carry them forward to offset against any future profits. However just because your accounts show a loss, it does not automatically mean that there is no tax to pay, as the rules for calculating your taxable profits are different to calculating your accounting profits.

Ascott Blake can help you with your company tax return when the time comes and assist you in avoiding any potential pitfalls.

How to pay corporation tax online

Paying your tax online is easy, and there are several different ways to pay with HMRC, so choose the one that best suits your business.

Just make sure that you use your company UTR (Unique Tax Reference), so that HMRC can allocate your payment properly. If you are not sure what your UTR is, then contact us and we can help.

What happens if you don’t file corporation tax?

You must register with HMRC for corporation tax. At Ascot Blake, in order to take the hassle away for you, we will do this usually as part of your incorporation of a limited company, so you don’t need to worry.

If you don’t file your corporation tax return, then you will have to pay a penalty to HMRC, depending on how late the return is.

If you are working with Ascott Blake, then you can rest easy knowing that we will make sure your tax returns are filed on time in order to ensure that any penalties are avoided.

How much is a late filing corporation tax penalty?

The initial penalty for late filing of corporation tax is £100, but this will increase after 3 months if you continue to fail to file your tax.

How do I pay a corporation tax penalty?

Corporation tax can be paid online through HMRC’s website, but can also be paid through your banking app. When the time comes, Ascott Blake will guide you through this process, but if you work with us from the start then we will ensure that you never have to pay HMRC penalties at all.

FAQS

What taxes do I pay as a limited company?

A limited company is a separate legal entity from you as its Director/Shareholder and as such, has to pay tax in its own right.

As a limited company, the main tax you pay is corporation tax, which is a tax on your profits. However there are other taxes that a company has to consider such as PAYE and NI on your employees as well as things such as VAT.

As a company you can pay dividends to shareholders, which are then taxable on the individual and are paid out of profits retained after paying Corporation tax, meaning that there is no further liability on the company for these. Dividends do not count as a deduction for calculating corporation tax.

Is corporation tax going up in the UK?

Corporation tax rates are expected to go up over the next few years, especially for businesses with profits in excess of £50k. However as with all taxes, these things change over time depending on lots of different factors, especially if we have changes in government!

How much tax do you pay on dividends?

Currently the first £2000 of dividends are tax free, then after that there is an increasing scale of rates. You can expect to pay 8.75% if you are a basic rate taxpayer and then 33.75% if you are a higher rate payer and 39.35% if you are in the additional rate band.

Ascott Blake can help you with your corporation tax

As with all your limited company taxes, Ascott Blake can help guide you through the maze. But don’t leave it too late to talk to us, give us a call today for a free no obligation quote. See how we can help you not just with your compliance work but also help you grow your business and drive it forward.

Limited companies can benefit from additional tax relief in the form of Super Deductions on investment in new plant and machinery, which means for every £1 you spend you will save 25p in Corporation tax.

Limited companies can also benefit from Research & Development Tax Reliefs, whereby qualifying expenditure attracts relief of 130% against taxable profits. If your company is loss making, there are also ways to obtain a tax credit equivalent of up to 14.5%. Talk to us to find out more.

Need help with your corporation tax?

Contact Ascott Blake in Bishops Stortford on 01279 797222 or email inbox@ascott-blake.com for details on how we can help not just with corporation tax but all your accounting functions.

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