Corporation Tax: Who pays and what does it cost?
Are you unsure whether your business is liable to pay Corporation Tax in the UK? Read on as we explain what the current Corporation Tax rules are, how to calculate what you may owe and how we can work with you to meet your obligations if eligible.
What is Corporation Tax?
Corporation tax is a tax that UK companies pay on their profits to HM Revenue and Customs (HMRC). This is in conjunction with income tax paid by individuals on their income.
Companies won’t receive a bill stating tax due. Directors have the responsibility to ensure they report and pay taxes by the deadline.
Who pays Corporation Tax?
HMRC states that all UK-based limited companies are liable to pay corporation tax on their taxable profits. These profits include trading profits and chargeable gains.
A limited company with a head office outside of the UK and premises in the UK will pay tax on the taxable profits derived from business activities in the UK.
HMRC says that clubs, co-operatives, and unincorporated associations, like sports clubs or community groups, must pay corporation tax.
Current UK Corporation Tax rates
The current Corporation Tax rate in the UK for all eligible companies and unincorporated associations are:
Profit banding | Corporation Tax rate |
Under £50,000 | 19% small profits rate |
Over £250,000 | 25% main tax rate |
Between £50,000 and £250,000 | 25% main tax rate less marginal relief |
Current Corporation Tax rates differ for ‘ring fence companies’. These are companies that are “involved in the exploration for, and production of, oil and gas in the UK and on the UK continental shelf”. The applicable tax rates for corporation tax are:
Profit banding | Corporation Tax rate |
Under £50,000 | 19% small profits rate |
Over £250,000 | 30% main tax rate |
Between £50,000 and £250,000 | 30% main tax rate less marginal relief |
Taxable profits include chargeable gains which are the sale or disposal of assets. This includes land, property, equipment, machinery and shares.
We can work with you to calculate any chargeable gains from your assets, as this can be a complex area.
How is Corporation Tax calculated?
If you employ us to prepare your company accounts and company tax returns, we can calculate your corporation tax bill. This includes your taxable profits, chargeable gains, capital losses and capital allowances.
When we calculate corporation tax bills for clients, we don’t base it solely on the profits from your company accounts. Accounting profits are adjustments for tax addbacks and deductions, such as capital allowances.
Chargeable gains can be calculated as the sale proceeds or market value of the asset being sold or disposed of less the amount paid for the asset. You can also include any buying, selling or improvement costs.
Assets acquired prior to December 2017 will need to use the Indexation Allowance Guide from HMRC. This will allow you to determine the “inflation factor” to apply to the figure paid for the asset. Then you can deduct this amount from the sale price. If you acquire an asset after December 2017, you cannot claim any indexation allowance.
Any improvements made to your asset prior to sale can also be calculated using the same inflation factor and subtracted from the sale price.
When is Corporation Tax due?
To avoid penalties and interest, make sure you follow tax deadlines when filing company tax returns and paying taxes.
Corporation tax due date is typically nine months and one day after the end of your last accounting period. This is applicable to all eligible companies with taxable profits of less than £1.5 million. Those with taxable profits above this threshold must pay their corporation tax in instalments.
How to pay Corporation Tax
If your company is registered and has filed a tax return, you can pay your corporation tax in different ways.
Payment | Payment Speed |
---|---|
Faster payments (online or telephone) | Same or next working day |
CHAPS | Same or next working day |
Bacs | Three working days |
Direct Debit | Three working days |
Debit or corporate credit card | Three working days |
Bank or Building Society | Three working days |
Direct Debit (if not previously set up) | Five working days |
If you pay your corporation tax bill ahead of schedule, HMRC is duty bound to pay you interest. The rate is based on the Bank of England base rate and is currently base rate minis 1% with a lower limited of 0.5%.
How we can help you
Our Corporation Tax services cover the registration of limited companies or unincorporated associations for Corporation Tax, the preparation of company accounts, company tax returns and the calculation of Corporation Tax bills.
We can even liaise with you so that you never miss a Corporation Tax deadline again.
To arrange a free initial consultation on our Corporation Tax services, please don’t hesitate to contact our friendly, experienced team today on 01227 370 077 or drop us a line using our online enquiry form to get the ball rolling.
Last updated: 20th March 2024