1. What Is Corporation Tax?
Corporation tax is a tax paid by UK companies on their taxable profits. It applies to:
- Limited companies
- Foreign companies with UK branches
- Some clubs, associations, and co-operatives
Unlike income tax, there’s no personal allowance—all profits are taxable.
2. Who Pays Corporation Tax?
You must pay corporation tax if you operate as a:
- Private Limited Company (Ltd)
- Public Limited Company (PLC)
- Charity or organisation that makes profits from non-charity activities
Sole traders and partnerships pay income tax, not corporation tax.
3. What Profits Are Taxed?
Corporation tax applies to:
- Trading profits (from your business activities)
- Investment income (e.g., bank interest, dividends)
- Capital gains (profits from selling assets like property or shares)
4. Corporation Tax Rates in the UK
As of April 2023:
- 19% for companies with profits under £50,000
- 25% for companies with profits over £250,000
- Profits between £50,001 and £250,000 are taxed using marginal relief (a tapered rate)
Rates may change yearly in the UK Budget, so check HMRC updates.
5. How to Register for Corporation Tax
You must register with HMRC within 3 months of starting business or receiving income. Steps include:
- Register your company with Companies House
- Receive your Unique Taxpayer Reference (UTR)
- Use the UTR to register online for corporation tax
- Set up a Government Gateway account
6. Filing and Paying Corporation Tax
Your responsibilities include:
- Filing a Company Tax Return (CT600): Due 12 months after your accounting period ends
- Paying corporation tax: Usually due 9 months and 1 day after the end of your accounting period
Example: If your financial year ends 31 March 2024, payment is due by 1 January 2025.
7. Allowable Expenses and Deductions
To reduce taxable profit, you can deduct:
- Staff salaries and pensions
- Office rent and utility bills
- Software, hardware, and equipment
- Advertising and marketing costs
- Business travel and subscriptions
- Professional fees (legal, accounting)
Only business-related expenses qualify.
8. Capital Allowances and Reliefs
You may also benefit from:
- Annual Investment Allowance (AIA): Claim 100% of the cost of certain assets
- Research and Development (R&D) Tax Credits
- Loss relief: Offset losses against profits from other years
- Marginal relief: For profits between £50,001–£250,000
9. Penalties for Late Filing or Payment
If you miss deadlines, HMRC may charge:
- £100 fine for late filing
- Additional penalties for continued delays
- Interest on unpaid tax
- Increased fines for inaccurate returns
Always file and pay on time to avoid penalties.
10. Do I Need an Accountant?
While not required, using an accountant can help:
- Ensure accurate tax calculations
- Maximise deductions
- File returns on time
- Stay compliant with HMRC rules
It’s highly recommended for growing or complex businesses.
Frequently Asked Questions
Q1: Can I reduce my corporation tax legally?
Yes, by claiming all allowable expenses, capital allowances, and tax reliefs properly.
Q2: Is VAT included in corporation tax calculations?
No. VAT is separate and doesn’t affect your taxable profits for corporation tax.
Q3: Can I carry losses forward or backward?
Yes. Losses can offset profits from other accounting periods to reduce tax.
Q4: What happens if I overpay corporation tax?
HMRC will refund the difference or apply it to future liabilities.
Q5: Do directors pay corporation tax?
No. Directors pay income tax on salary and dividends, but the company pays corporation tax on profits.
Q6: Can I file my tax return myself?
Yes, if you’re confident. But many businesses use accountants to ensure accuracy.
Conclusion
Understanding how corporation tax works helps you manage your company finances responsibly and avoid costly penalties. Whether you’re a startup or an established business, staying on top of your tax obligations is crucial for long-term success.
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