What Is Corporation Tax? A Guide for UK Companies
Corporation Tax is charged on the taxable profits of limited companies and certain other organisations. It can apply to trading profits, investments and gains made when assets are sold.
The company is responsible for calculating its liability, paying the tax and submitting a Company Tax Return to HMRC.
Corporation Tax Rates
The small-profits rate is 19% where qualifying profits do not exceed £50,000. The main rate is 25% where profits exceed £250,000. Marginal Relief can reduce the effective rate between those limits.
The thresholds are reduced where the company has associated companies, and shorter accounting periods can also affect them. The tax rate should therefore not be determined from profit alone.
How Is Taxable Profit Calculated?
Accounting profit is adjusted under tax rules. Common adjustments include:
- Adding back depreciation and disallowed expenses
- Deducting available capital allowances
- Removing client entertaining and other non-deductible costs
- Considering losses and relevant tax reliefs
Valid limited company expenses reduce taxable profit. Dividends do not: they are distributions made from post-tax profits.
Payment and Filing Deadlines
For most companies, Corporation Tax is payable nine months and one day after the end of the accounting period. The Company Tax Return is normally due 12 months after the accounting period ends.
These are separate deadlines. Paying Corporation Tax does not file the return, and submitting the accounts to Companies House does not complete the HMRC filing.
Large companies may have to pay Corporation Tax by instalments. First accounts and periods longer than 12 months can also require special handling.
Companies must keep records supporting the return, including sales, expenses, assets, liabilities and calculations. The return is filed electronically with accounts and a tax computation, even where the company has already submitted abbreviated or filleted accounts to Companies House.
Plan Before the Year End
Preparing reliable figures before the year end can identify opportunities involving pensions, expenditure, losses and capital allowances. Transactions should have a genuine commercial purpose and be completed at the correct time.
Completing the accounts early does not make the tax payable early. It simply gives the company more time to prepare for the bill.
GMS Accountants helps limited companies in Cambridge and Nottingham prepare accounts, calculate Corporation Tax and plan ahead. Contact us for practical company tax support.
