If you own or are the director of a company you will need to know about Corporation tax, how it is calculated, how to submit a tax return, when and where to pay Corporation Tax and the penalties you face if you don’t pay on time. At Styles & Associates Accountancy we manage Corporation Tax submissions on your behalf and can help take the stress out of filing your tax return.
What is corporation tax?
UK Corporation Tax is a tax that limited companies need to pay on their profits. Corporation Tax revenue is collected by HMRC and used by the UK government to help fund healthcare, education, infrastructure and the police.
Many business owners will also need to pay VAT and National Insurance in addition to Corporation Tax.
Who pays Corporation Tax?
HMRC state that:
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, e.g. a community group or sports club
Corporation Tax is a tax payable by companies against annual profits similarly to income tax for individuals, sole traders or partnerships. Profits are deemed as the money your business makes after paying overheads, such as salaries, rent, materials, advertising, repairs or other legitimate business expenses.
If your company has made a profit on investments or from selling capital assets (chargeable gains), Corporation Tax is also due.
You will not be sent a bill for Corporation Tax – you will need to file your calculations to HMRC. Many companies choose to appoint an accountancy firm to manage their Corporation Tax but the Company Director is still liable to ensure the tax return is submitted on time.
At Styles & Associates we can prepare your tax calculations accurately and on time – call us on: 01420 541 554 to discuss your requirements.
How much corporation tax should I pay?
Corporation Tax rates can change each year. Prior to April 2016 Corporation Tax varied depending on the amount of profit a company made. There is now a standardised rate for all businesses. In 2016/17, the Corporation Tax rate was 20 per cent with a projected reduction to 17% by 2020. However at Budget 2020 the Corporation Tax main rate (for all profits except ring fence profits) for the years starting 1 April 2020/21 is set at 19%.
It is a legal requirement as a director of a limited company to keep accurate records of all your business expenses in order to calculate how much Corporation Tax you owe.
How do I pay Corporation Tax?
UK companies should register with HMRC for Corporation tax within three months of incorporating a business – unless it is dormant/non-trading – ‘trading’ includes: buying, selling, advertising, renting a premises, or employing someone. Please contact Styles & Associates on 01420 541 554 if you are unsure of your business trading status.
HMRC will issue you with a Unique Taxpayer Reference when you register your business with Companies House. Once you have received this you can sign in to submit your Annual Return to report your Corporation Tax calculation.
Your Corporation Tax payslip with tell you which account to pay in to. Tax must be paid by the specified deadline so it is important you use the appropriate method to ensure your funds reach HMRC in time:
CHAPS, online or telephone banking (Faster Payments)
Three Working Days
BACS bank transfers, Direct Debits (for pre-arranged DD)
Five Working Days
Direct Debit (for new DD)
You can no longer pay with a personal credit card.
If you do not submit your tax return on time or fail to pay your Corporation Tax by the deadline HMRC can impose a variety of penalties:
Penalties for late tax returns
Miss your filing deadline by one day – £100 fine
Miss your deadline by three months – another £100 fine (£200 in total)
Miss your deadline by six months – HMRC will estimate your corporation tax bill and fine you an extra 10% of this amount
Miss your deadline by 12 months – HMRC will fine you an additional 10% of your estimated bill
If your tax return is late three times in a row, £100 fines are increased to £500 each.
Failure to pay Corporation Tax on time is an extremely serious matter and can become a costly one -which is why many companies appoint an experienced accountancy firm to manage tax declarations and filing.
Corporation Tax filing deadline differs from other taxes. You need to pay Corporation Tax before you file your company tax return. This date depends on your accounting periods – payment will be due 9 months and 1 day after your accounting year end. For example, for accounting periods ending 31st March, the payment deadline will be January 1st.
The deadline to file your company tax return is 12 months after the end of the annual accounting period.
You must submit your corporation tax return at some point between the date of your company year end and your statutory filing date. The statutory filing date is either 12 months after the year end, or three months after you receive a notice to deliver a return from HMRC - whichever is latest.
For start-up businesses, you may have two Corporation Tax accounting periods – if you are unsure and need advice please get in touch with our specialist team on:
01420 541 554.
If your businesses has generated more than £1.5 million in taxable profits you will need to pay your Corporation Tax in instalments. For companies that have not made any taxable profit you are still required to declare this with HMRC.
When should I pay corporation tax?.
Corporation Tax Penalties.
Unlike individuals, there is no tax-free allowance for companies - all profits are taxable so it is important to make sure you are not paying more tax than required.
There are a number of checks to ensure you pay the correct amount of Corporation Tax.
One of the easiest ways to reduce you tax bill is to ensure you keep good records of all your allowable expenses. Legitimate business expenses reduce your Corporation Tax liability. Train fares, phone bills, office equipment, stationary, mileage, professional insurance are all allowable expenses - so make sure you and your employees keep receipts for all expense transactions.
Expenses incurred must relate exclusively to use for the business - by deducting these costs, you reduce your business profit and lower the amount of Corporation Tax your business is liable to pay.
Salaries along with National Insurance contributions made by your company are a business expense and are therefore tax deductible.
Paying yourself a salary will help to reduce your Corporation Tax liability, but you will have to pay income tax on earnings and make employee National Insurance contributions. At Styles & Associates can discuss with you your level of Salary (deductible as a business expense), and Dividends (non deductible as a business expense).
Early payment to HMRC
If you have kept organised records and are in a position to pay your corporation tax before the deadline, HMRC will pay you 0.5% interest on the amount of corporation tax paid from six months and 13 days after the start of your accounting period to the due date.
Pensions are a tax efficient way to withdraw money from your company. If you pay in to a pension for retirement through your company, this will be deducted from your annual profits and reduce your total corporation tax bill.
Annual Investment Allowance (AIA)
Equipment will deplete in value and efficiency over time – investment in new equipment such as plant machinery, cars, office equipment and integral features and fixtures such as bathrooms and kitchens are deductible expenses and will reduce your Corporation Tax liability.
The maximum amount deductible through the AIA varies – it is important to check with a tax specialist before submitting your tax declaration. At Styles & Associates Accountancy we can manage submissions on your behalf, call us on: 01420 541 554 for a free consultation.
Corporation Tax reliefs
Corporation Tax reliefs are available to limited companies and reward investment in specific areas.:
Research & Development (R&D) Relief: designed to encourage: “work that advances overall knowledge or capability in a field of science or technology, and projects or activities that help resolve scientific or technological uncertainties”.
The Patent Box: a reduced rate of Corporation Tax on profits earned from patented inventions.Creative industry tax reliefs: a reduction in taxable profits for companies that generate profits from theatre, film, television, animation, or video games.
Income and trading losses: you could be eligible for tax relief if you make a loss from trading, the sale or disposal of a capital asset or on property income.
Other reliefs are available in certain circumstances - for more guidance on what is eligible please contact Styles & Associates on: 01420 541 554. We take the stress out of Corporation tax and can manage your annual tax returns on your behalf.
How to reduce your corporation tax bill.
Annual Corporation Tax Calculations.
We take the stress out of Corporation tax and can manage your annual tax returns on your behalf.
Get in touch with our team today to discuss your requirements – we can provide a full range of services from bookkeeping to tax and accounting support. Call: 01420 541 554
For Small Businesses to Large Corporations.
We welcome new enquiries for accountancy services for small businesses to large corporations, sole traders and partnerships.
Areas we cover:
Corporation Tax Services across the South.
We welcome new enquiries from businesses seeking accountancy services from Alton, Hampshire and the surrounding areas.