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A Guide to Corporation Tax

There are many things to remember when you form a limited company and during the course of trading as a business.  One of the most important ones concerns tax and top of the list of taxes to be paid is corporation tax.  But what is it, when is it due and how to do you know how much you will need to pay?

 

Who pays corporation tax?

When you register a limited company, you will be due to pay corporation tax.  Any foreign company that has a branch or office within the UK will also be required to pay this, as will any club, cooperative or unincorporated association such as a sports club or community group.  The thing to remember about corporation tax is that you don’t get a bill for it – the responsibility is on the director to work out, report and pay this tax.

When you start as a limited company, the business is also registered for corporation tax.  Within a few weeks of doing this, a letter will be sent to the business’s registered address that contains a form called CT41G.  If this hasn’t appeared within three months from the formation of the company, you need to contact HMRC or use their website to note this.  Once you have complete this form, you are considered ‘active’ for the payment of corporation tax.

The only way to avoid paying corporation tax is if your company is registered as ‘dormant’ with HMRC.  This means you have formed the company but have not started trading yet and therefore there are no profits to be taken into account.  As a result, you will not yet be liable to pay corporation tax.

 

Preparing for payment

In order to know how much you will need to pay, you are required to keep accounting records and to prepare a Company Tax Return.  This will include information about the profit and loss for corporation tax and will often be completed by an accountant, though you can also complete the process yourself.  Paperwork will also need to be registered with Companies House at the same time. If you are looking for professional accounting, take a look at our Business Accounting service for an affordable way to keep on top of your accounts.

The deadline for these returns is 12 months after the end of the accounting period that it covers.  So, for the year April 2016-17, you would need to submit the return by no later than April 2018.  If you go over this period, you will face a financial penalty.

 

The payment

The current rate of corporation tax is 20%, though there are some changes to this for companies involved in oil rights or extractions.  You are required to make this payment within nine months of the end of the accounting period to avoid receiving penalties.

You will have to pay corporation tax on money the company makes from doing business (trading profits) as well as investments and selling assets for more than they cost, known as chargeable gains.  Tax is also paid on profits from outside the UK if the company is based within the UK.  If it is based elsewhere, then the payment is only made on the tax made within the UK.

 

Getting advice

Tax is a complicated area and there can be financial penalties as a minimum if things aren’t done correctly.  Therefore, if you are in any doubt about the amount of tax or information required for corporation tax, you should always seek expert advice as quickly as possible.  If you cannot make the required payment, contact HMRC at the earliest point to discuss the matter and try to avoid hefty fines being applied to your account.