Corporation Tax: Who pays and what does it cost?
The UK tax system has a lots of tax legislation and the main types of tax are Income Tax, Corporation Tax, Value Added Tax (VAT), Capital Gains Tax and Inheritance Tax.
If you're not sure whether your business should pay Corporation Tax, read on as we explain what the current Corporation Tax rules are, how to calculate what your company may owe and how we can work with you to meet your obligations.
What is Corporation Tax?
Corporation tax is paid by UK companies on their profits to HM Revenue and Customs (HMRC). Companies won’t receive a bill from HMRC stating the tax due, instead directors have the responsibility to ensure they calculate, 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 such as 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?
When it comes to preparing your company accounts, company tax returns and calculating your corporation tax bill, using a professional and experienced accountant is crucial.
When we calculate corporation tax bills for clients, we don’t base it solely on the profits shown in your company accounts. For tax purposes, accounting profits have to be adjusted for tax addbacks and deductions, such as capital allowances.
Chargeable gains are 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 meet tax deadlines when filing company tax returns and paying taxes. Corporation tax is typically payable nine months and one day after the end of your last accounting period. For example, a company with a 31st March year end will have a corporation tax payment deadline of 1st January.
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.
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 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 |
How we can help you
Our Corporation Tax services include registration for Corporation Tax, the preparation of company accounts, company tax returns and the calculation of Corporation Tax bills. We can also liaise with HMRC on your behalf. To arrange a free meeting with your local team today call 0131 202 9888 or drop us a line using our online enquiry form to get the ball rolling.
Last updated: 4th October 2024