Corporation tax is paid by businesses in the UK and is calculated on their annual profits, in a similar way to income tax for individuals.
The corporation tax rate has been 19% for all limited companies since April 2016. Before this, the rate varied depending on the company’s profits.
Unlike individuals, companies don’t receive any kind of tax-free allowance, and therefore all profits are taxable. However, there are several expenses and deductions that can be claimed to reduce your bill.
Who pays corporation tax?
Corporation tax is payable by all UK limited companies.
The following organisations may also need to pay it, even if they’re not incorporated:
- Members clubs, societies, and associations
- Trade associations
- Housing associations
- Groups of individuals carrying out a business (such as co-operatives).
It is the responsibility of the company director to ensure that the corporation tax return has been submitted on time, and the tax bill has been paid – even if the company hires an accountant to prepare their calculations.
How to register with HMRC
Once your company is incorporated, you must tell HMRC within three months of trading that a limited company has been formed.
Depending on the type of business you have, it can be tricky deciding whether your business is ‘trading’. HMRC has extensive explanations of what it considers to be ‘active’, ‘trading’, ‘non-trading’, and ‘dormant’, which you can check to make sure you’re compliant.
When you register with HMRC, you’ll need to include details of the following:
- the date you began the business (this will be used as the start date of the company’s first accounting period)
- company name and registration number (this will be provided by Companies House when you incorporate)
- the company’s main address
- type of business
- the date you’ll make your annual accounts up to
- name and home address of the company directors.
Corporation tax deadlines
You must submit your corporation tax return at some point between the date of your company year-end and your statutory filing date. The statutory filing date is either 12 months after the year-end or three months after you receive a notice to deliver a return from HMRC – whichever is the latest.
However, you may be required to pay your corporation tax bill before your return is due.
If your company has made a taxable profit of anything up to £1.5m, you’ll need to pay the corporation tax within nine months and one day after the end of your accounting year.
As an example, if your accounting year ends on 31 March, your corporation tax payment will be due on 1 January the following year, while your tax return is due three months later.
For businesses with a turnover of more than £1.5m, corporation tax must be paid in installments.
Accounting year endsYour company’s financial period finishes9 months and 1 day laterCorporation tax is due (if profits are less than £1.5m)12 months laterA company tax return is due (unless HMRC sends a notice to deliver)