5 Things you should know about corporation tax

corporation tax

What is corporation tax and who pays it

Corporation tax is a type of tax paid by limited companies in the UK on their annual profits. It doesn’t apply to the self-employed or those in a business partnership. If you are a sole trader or in a partnership, you have to pay income tax on your profits and file a self-assessment tax return every year.

Filing a tax return and paying tax is the director’s responsibility. Even if you have a professional accountant to help you with all the calculations and filing on your behalf, it is your legal responsibility to file and pay corporation tax on time and to make sure that what is submitted to HMRC is correct.

If being a director of a limited company is new to you, make sure you familiarise yourself with the rules and the regulations. It doesn’t mean you have to study accounting and taxation but you have to have a general understanding of running and managing a limited company and this can’t be replaced by just hiring an accountant.

What is the corporation tax rate

The corporation tax rate has been the same since a few years now and as at June 2021 it’s still 19%. If you’re a director of the company you are responsible to monitor any changes in the rate and make sure all the calculations and the amount of the tax the company pays is correct.

The Chancellor has announced that the main corporation tax rate will increase from 19% to 25% effective from 1 April 2023, however, it will remain at 19% for the companies with annual profits not exceeding £50,000. For the companies with the profits between £50,000 and £250,000 there will be different levels of tax. The higher the profits, the higher the rate your company will have to pay.

Deadlines for corporation tax

The deadline for paying your corporation tax is normally 9 months and one day after the end of the accounting period if your annual taxable profits are not more than £1.5 million. If they are above £1.5 million, you must pay in instalments.

However, you have 12 months from the end of the accounting period to file the corporation tax return to HMRC. The form used for filing the return is called CT600 and it has to be accompanied by the company’s accounts that you will also submit to Companies House.

What if you’ve made a loss and have no tax to pay? You still have to file the tax return to HMRC. If your company is dormant, you may not be required to file the return, however, you need to inform HMRC first that your company is dormant for corporation tax and they will confirm that you don’t have to file the corporation tax return.

How to pay corporation tax

It’s very important to remember that HMRC must receive the money by the due date, so when making a payment make sure you allow enough time for the money to reach HMRC, otherwise you will incur interest on late payments.

Ways to pay a corporation tax bill:

  • Faster Payment, CHAPS- this is for the same day or next day payments
  • BACS, Direct Debit (if you already have one in place), by debit or corporate credit card, at your bank- this is for the three working days payments
  • Direct Debit if you haven’t used it before- this is for the 5 working days payments.

If you’re looking for a professional accountant for your limited company, contact our friendly team in Oxford for a free consultation.

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