Your limited company must pay Corporation Tax (CT) on any profits it makes during its financial year. CT is applied to the profits of all UK companies, regardless of size. Here we look at how companies are taxed, and the deadlines you should be aware of as a director.
When you register a new company with Companies House, HMRC will be automatically informed of the new entity’s existence.
A Corporation Tax registration form (CT41G) will be sent to your company’s registered office, along with information on how to get started, together with a Unique Taxpayer Reference (UTR) for your company.
Within three months, you (or more likely, your accountant) must provide HMRC with further information about the company, such as what type of business you are running, when you started trading, and the date when your annual accounts will be up to.
What tax rates apply to your company?
There are two types of CT; one is for larger companies, and another for smaller ones.
For the vast majority of small companies, a ‘small profits rate’ applies. This is currently charged at 20% of all profits up to £300,000.
On 1st April 2015, the main rate of Corporation Tax was finally aligned with the small profits’ rate, at 20%.
If your company generates profits of between £300,000 and £1.5m a complex system called ‘marginal relief’ determines your tax liability for the year.
Interestingly, although the personal tax year runs from 6th April – 5th April each year, the CT tax year runs from 1st April until 31st March each year. This so-called ‘fiscal year’ is different from your company’s accounting period, which will typically start in the month when your company was first incorporated.
For a number of reasons, your accountant may recommend changing your company’s accounting period ‘end date’ – this can easily be done by shortening the current year’s period, but the period cannot be extended.
How to account for Corporation Tax
To calculate the profit upon which CT is applied, your accountant will add up all of your business income, bank interest, capital and other gains, and take away any legitimate expenses and reliefs.
It is likely that your company’s accounting period spans across two ‘fiscal years’ (see above). So, if different tax rates apply between each year, (e.g. 21% in Year 1 and 20% in Year 2) your CT liability will be apportioned using each rate, according to the number of days your accounting period spans each fiscal year.
Filing and payment deadlines
It may surprise you to learn that the Corporation Tax return (CT600) itself must be filed online within 12 months of your company’s accounting period, but the company (if annual profits are £1.5m or less) must pay any tax it owes to HMRC within 9 months and one day following the end of its accounting period.
This is the only major tax where the payment and filing deadlines do not fall on the same day.
You can settle your tax bill via a number of online methods, although you can no longer do so by post.
HMRC recommends setting up a direct debit to reduce the chances of missing the deadline – which seems very sensible!
Importantly, if your company is trading but you don’t have a CT liability for the year in question, you (or more likely, your accountant) must inform HMRC that you have ‘nil to pay’.
Keeping accurate records
All companies have to keep the following information safe for a minimum of six years;
- Details of your companies assets, liabilities, income, expenditure and any ‘stock in hand’ at the end of your company’s financial year.
- Business records, such as your bank statements, annual accounts, invoices, orders, delivery notes, and any other relevant information.
Unsurprisingly, HMRC operates a penalties regime for committing any number of CT-related offences, such as failure to late filing, and incorrect CT600 submissions. Find out more on the HMRC site.
Try HMRC’s introduction to Corporation Tax here.