Small business guide to corporation tax

If you set up your business as a limited company, then you will need to pay corporation tax on your profits. This is opposed to income tax, which sole traders, limited liability partnerships and traditional partnerships will pay. The following guide outlines the key elements of corporation tax and how to pay it.

Registering for corporation tax

When you set up your business as a limited company, you will need to register the company with HMRC so that they know it exists and is liable for tax. If you use an accountant, you will need to let HMRC know who they are and that they are authorised to act on your behalf. The HMRC website will provide you with the forms you need as well as in-depth information.

Making a return

Companies are expected to work out their own tax liability and to pay it without being previously assessed by HMRC.

Once a year you will need to file a company tax return form CT600 to HMRC. You will also need to send off any other accounts information prepared by your accountant.

The fastest and easiest way to make a return is online, and HMRC encourage businesses to do this. It is likely that your accountant will use special software to create your return and then submit this online for you.
Which profits will be taxed?

All trading profits, that is, money made from business trading minus expenses, are liable to tax. Capital gains – money made from selling company assets – is also taxed. For example, if you sold your business premise for more than what you paid for it, the difference in price would be taxed.

What are the rates for corporation tax?

The main rate of corporation tax is currently 28%, however companies with taxable profits of less than 300,000 will be taxed at the lower rate of 21%. There is also some marginal relief for companies with taxable profits of between 300,000 and 1.5 million.

Relief and allowances for corporation tax

Any relief or allowances received by the business must be claimed on the corporation tax return. Allowances are given for purchases of industrial buildings, fixtures, plant, equipment and motor vehicles.

Relief may be claimed on charges to income, such as covenants to charities. Relief may also be charged on trading losses, which can be set against the income of the previous accounting period. If the loss is not claimed for a relief, it will automatically be carried over and set against future profits.

Filing a return

The Corporation tax return will be due either 3 months from HMRC’s notice, or one year from the accountancy date – whichever is later. HMRC will send a notice to the company 3 months from the accountancy period, informing them to make a return.

If you know your company is liable for corporation tax but you have not received this notice,  you should contact HMRC before the due date to avoid late penalties.

HMRC may wish to carry out an inquiry into the tax return, and at the end of this they will inform you of any necessary adjustments. The company will then have 30 days to amend the self-assessment.

Making a corporation tax payment

The due date for corporation tax payments will be nine months and one day after the end of the accounting period, and should be sent to the HMRC Accounts Office. HMRC will send a payslip and prepaid envelope three months after the accounting period which you will use to make your return.

Recommended Links

www.hmrc.gov.uk

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