A Guide to Corporation Tax for the Uninitiated

 If your business is an incorporated business, that is, one that has registered as a company with Companies House, it must pay Corporation Tax on its taxable profits. Trading profits, rental income from property, investment gains, and other chargeable earnings are all examples of taxable profits.

If your firm was incorporated in the UK and/or is managed and controlled centrally in the UK, it will be considered a UK resident. If your firm is based in the United Kingdom, it will have to pay tax on all earnings made there.

Corporation Tax rates are set ahead of time and disclosed in the Chancellor's Budget. Corporation Tax is currently 19 per cent, but it will be reduced to 17 per cent on April 1, 2020. This is true for England, Wales, and Scotland, but on April 1, 2018, the rate in Northern Ireland reduced to 12.5%. You will not be obliged to pay Corporation Tax if you have not registered your firm as a company with Companies House.

Instead, you'll be compelled to pay income tax on your company's profits.

REGISTERING FOR CORPORATE TAX IN THE UK

HMRC requires a corporation to file for Corporation Tax within three months after beginning to trade — that is when business transactions or income begin. Your company may face penalties if you do not register within this three-month period.

WHAT YOU SHOULD TELL HMRC:

  • The start date of your company's first accounting period (this will be used as the start date of your company's first accounting period).
  • Name and address of your business, as well as your company's registration number (provided to you by Companies House when you incorporated your company)
  • The primary location where you conduct business
  • That's the type of business you're in.
  • The deadline for filing your annual tax returns (see Accounting Periods)
  • The company's directors' names and addresses.
  • This information will be used by HMRC to determine when your firm must pay Corporation Tax.

If your business is dormant (i.e. not in operation), you will not be needed to register for Corporation Tax. Please click here for particular HMRC guidance on whether your company is regarded to be trading.

PAYING BUSINESS TAX

Your company is responsible for calculating and disclosing how much Corporation Tax it owes HMRC in a company tax return. Your accounting period for Corporation Tax purposes is the time period covered by your company's tax return and cannot exceed 12 months.

It's crucial to keep in mind that your Corporation Tax accounting period isn't usually the same as your financial period - that is, the time for which your company generates financial statements.

For example, if your financial statement period is more than 12 months, you will need to file two tax returns for the period because they cannot be longer than 12 months.

A Corporation Tax computation will be used to determine your company's Corporation Tax liability.

This will be sent to HMRC with your company's tax return as proof that you have correctly estimated your tax liability.

Calculating your company's Corporation Tax liability entails a number of steps, which will be detailed in detail in the section below:

  • Profits from trade that have been adjusted for taxes
  • Expenses that are not permitted
  • Allowances for capital
  • Loan arrangements that aren't traded (e.g. bank interest income)
  • Rental income
  • Gains that can be charged

It's crucial to note that HMRC has the authority to investigate any company tax return, regardless of its size. As a result, you should keep your financial and business data safe, and we recommend using cloud accounting software like QuickBooks to ensure efficient and accurate record keeping.

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