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If your limited company makes a profit, you need to pay Corporation Tax on that surplus income. In this post, we discuss what Corporation Tax is, how and when to register with HMRC, and the deadlines for working out and paying Corporation Tax on company profits.
What is Corporation Tax?
Corporation Tax in the UK is a tax on business profits that applies only to certain types of entities, including:
- private and public companies limited by shares or guarantee
- unlimited companies
- foreign companies with UK branches or offices
- unincorporated associations like community groups, sports clubs, and co-operatives
From 1 April 2015 to 31 March 2023, a single rate of 19% Corporation Tax applied to all companies.
However, from 1 April 2023, the following Corporation Tax rates apply:
- 19% ‘small profits rate’ for companies with profits up to £50,000
- 25% ‘main rate’ for non-ring fenced profits over £250,000
- Main rate reduced by ‘Marginal Relief’ for companies with profits between £50,000 and £250,000
Marginal relief means that you pay a gradually increasing amount of Corporation Tax between the small profits rate and the main rate.
Your company will need to pay Corporation Tax on all profits generated in the UK or overseas from buying or selling goods and services (i.e. ’trading’), managing investments, and earning interest.
Corporation Tax also applies to ‘chargeable gains’ when you sell company assets like shares, equipment and machinery, and real estate.
How to register a company for Corporation Tax
When you set up a company, one of the first things you will need to do is register with HMRC for Corporation Tax. This should be done no later than three months after starting to do business, which includes:
- buying and selling goods or services with a view to generating profits
- managing investments
- earning interest
- advertising your business
- buying or leasing property for business purposes
- employing staff
- selling business assets for more than you paid for them (known as ’chargeable gains’)
- receiving any other type of income through the company
The easiest way to register for Corporation Tax is to use HMRC’s online registration service. You will need to sign in to (or create) your business tax account and provide the following details:
- company Unique Taxpayer Reference (UTR) – HMRC will post this to your registered office address within 14 days of company formation
- company registration number – you will find this on your certificate of incorporation
- the date you started to do business – this will be the start date of your first accounting period for Corporation Tax
- date your annual accounts are ‘made up to’ – this date is called an accounting reference date and it marks the end of your company’s financial year
- principal place of business, i.e. your registered office address or trading address
- nature of business activities carried out by the company
- name and residential address of each company director
When you have successfully registered, HMRC will provide you with your deadlines for paying Corporation Tax and filing a Company Tax Return.
How and when to pay
The payment deadline for Corporation Tax is nine months and one day after the end of your accounting period for Corporation Tax.
For example, if your accounting period ends on 20 June 2023, your Corporation Tax payment deadline will be 21 March 2024.
You can pay your Corporation Tax bill in many different ways, including online and telephone banking, CHAPS, Bacs, or Direct Debit.
Working out your Corporation Tax bill
To work out how much tax you owe, you will have to prepare a Company Tax Return. This must be filed 12 months after the end of your accounting period, i.e. three months after your Corporation Tax payment deadline.
The order of these deadlines does cause a bit of confusion, given that your Corporation Tax bill has to be paid before your Company Tax Return is filed. Be careful not to mix up these two dates!
So, to clarify:
- Step 1 – Prepare your Company Tax Return
- Step 2 – Pay your Corporation Tax bill nine months and one day after the end of your accounting period
- Step 3 – File your Company Tax Return 12 months after the end of your accounting period
If your taxable profits in an accounting period exceed £1.5 million, you will need to pay your Corporation Tax bill in instalments.
Reliefs and allowances
You may be able to reduce the amount of Corporation Tax you owe by deducting certain business expenses from profits before tax when you’re preparing your annual accounts and tax return.
These allowable expenses include almost any costs incurred ‘wholly and exclusively’ for business purposes, including employees’ wages, stock, and raw materials, office equipment, rent and utility bills, travel and accommodation, advertising and marketing, and staff training.
However, when you buy business assets like machinery or vehicles, you will need to claim capital allowances on your Company Tax Return instead. You can’t deduct these types of expenses from company income when working out your taxable profit.
So, there you have it…
We’ve explained what Corporation Tax is and who needs to pay it, how and when to register with HMRC, and the deadline for paying your Corporation Tax bill.
If you have any questions about limited company business taxes, please contact us or leave a comment below.