What Is Corporation Tax?
Corporation Tax is paid on taxable profits. You’ll need to pay it if you’re set up as a limited company, or an organisation like a charity, association or society. It is the company equivalent of income tax.
Related: how to register as a limited company.
What is taxable profit?
Taxable profits can include capital gains, which are the profits made on the sale of a property or investment.
They can also include profits from taxable income like trading profits (an alternate name for gross profit) and investment profits.
Who pays Corporation Tax?
All UK-based business have to pay Corporation Tax on taxable profit, even if those profits come entirely from sales to people in other countries.
If a company isn’t based in the UK but maintains a UK office, you’ll still have to pay Corporation Tax, but only on taxable profits relating to your UK sales and activities.
Corporation Tax rates UK
For the current financial year 2017/18, the Corporation Tax rate UK is 19%. This is now the lowest Corporate Tax rate in the G20.
In the 2016 Budget, the Government stated its intention to cut the UK’s rate of Corporation Tax to 17% by 2020.
Previous Corporation Tax rates UK
Prior to 1 April 2015, there were three tiers. These are worth knowing in case you need to pay tax, or claim any tax relief, from this period.
- If your profits were below £300,000 per year, you paid a “small profits” rate. This was 20% in 2014, 2015 and 2016.
- If your profits were £1,500,000 or above, then you paid a “full rate” or “main rate”. This was 21% in 2014, then 20% in 2015 and 2016.
- If your profits were between the above two figures, then you were entitled to “marginal relief”. This was a sliding scale which meant you paid Corporation Tax at a level applicable to your business size.
You can use the Marginal Relief calculator to work out how much you can claim back on profits made before 1 April 2015.
Claiming Corporation Tax relief
If you make a loss – either from the loss of trading, the sale of a capital asset, or on income received from property – then you could claim relief from Corporation Tax.
You can claim this relief by offsetting your loss against other business profits from the same period. You can also carry it back, or carry it forward, into another accounting period.
You can also claim Capital Allowances, which can include purchases of equipment, machinery and vehicles for your business.
Other reliefs are available, including reliefs for creative industries (CITR) and disincorporation relief. You can see a list here.
Related: learn about the proposed Corporation Tax Reform of Loss Relief.
Who is responsible for filing Corporation Tax returns?
If you have an accountant, then this will be one of their key jobs. Ultimately though, it is you as director of the limited company that is responsible for keeping your books and tax records in order.
Your responsibilities include:
- Ensuring your company’s Corporation Tax liability is accurate.
- Filing your Corporation Tax return (form CT600) on time.
- Paying Corporation Tax to HMRC.
Note that the Corporation Tax deadline is different from income tax and VAT deadlines. You’ll have to pay Corporation Tax before you file your company tax return,
Corporation Tax Self-Assessment
You’ll need to file a Corporation Tax return (form CT600) to HMRC every year. These have to be filed online.
This will need to include:
- Your company name and registration number
- Your registered office
- Your tax reference number
- Details on your turnover and profit for the year
- Your tax calculation
- Details of allowances, including reliefs claimed and capital allowances
Corporation Tax key dates
When it comes to Corporation Tax, the tax year (also known as the “financial year” or the “fiscal year”) runs from 1 April to 31 March of the following year.
This is different from the tax year for individual taxpayers, which runs from 6 April to 3 April of the following year.
You can submit your Corporation Tax return at any time between your company’s year-end date and your statutory filing date.
If your CT600 return is filed late, or is inaccurate, then you will be charged a penalty. You will personally have to pay this, even if you file through an accountant.
You need to pay your corporation tax liability electronically. If it’s late, you’ll be charged interest.
Corporation Tax records
Please note, you legally have to keep all company records for at least six years. These records include all receipts, invoices, workings and tax-related paperwork. These records can be stored digitally, such as scans, provided they are easy to read.
KashFlow keeps books simple, making it easy for you to maintain your records and budget properly. Our accounting software links directly to HMRC, so you can file your returns directly to the taxman. Try it yourself with a free trial.