What is Corporation Tax?

Corporation Tax is a tax on the profits of UK companies. As of April 2024, the main rate is 25% for profits over £250,000, while companies with profits up to £50,000 pay 19%. Companies with profits in between can benefit from Marginal Relief, which gradually adjusts the rate.

While most UK companies are taxed on their profits, certain entities such as charities may be exempt under specific conditions. However, there are legal strategies to reduce your corporation tax liability. Companies must file the CT600 form annually with HMRC within 12 months after the end of their accounting period. Even if the company incurs a loss, a CT600 must still be submitted. Keep reading to learn more about calculating the corporation tax for your business, filing a corporation tax return, and further details.

Who is responsible for paying corporate taxes?

All limited liability companies in the UK are responsible for paying Corporation Tax. Clubs, associations, co-operatives, and certain business groups may also be liable if formally structured as companies. Sole proprietorships and partnerships are generally not subject to Corporation Tax.

You must file a self-assessment tax return to report your income and pay income tax according to your earnings. However, suppose the company employs an accountant to compile the corporate tax calculation. In that case, the director must guarantee that the corporate tax returns are made filings on time and that the tax is paid accordingly.

Related post – The Complete Guide to UK Corporation Tax for Businesses

How to sign up with HMRC?

When starting a business in the UK, you must notify HMRC within three months of commencing operations that your company is a limited liability company. You can provide details such as company name, registration number, registered office address, business type (active, trading, non-trading, or dormant), accounting period, and directors’ information.

Once you are clear about your type of business, you can provide the correct information without any difficulties. Some of the details that are required while signing up with HMRC are the start date of the business operations, the company name and registration number of your organisation, the location of company headquarters, the category of enterprise, the annual closing date for your financial statements, director’s name and address, etc.

How to submit CT600?

In contrast to individuals, for whom HMRC automatically generates a tax bill based on information provided, businesses are solely responsible for determining their corporate tax liability. It is crucial to file the Corporate tax returns or CT600 forms annually. Filing the annual accounts with HMRC and Companies House is essential, and they disclose the filing information of all limited liability businesses.

You can file the Corporate tax return forms electronically, but in exceptional cases, you can submit them in paper form. However, the paper filers should include the WT1 to explain why they cannot submit their return online. Ensure your CT600 has the following details: business name and registration number, registered office address, tax reference number, revenue and profits, tax estimations, exemptions, etc.

When there is no tax due, what happens then?

You must file a corporate tax return annually, even if there is no corporate tax. Unless you submit a “nil to pay” form, HMRC will send you payment reminders before payment is due. Send the pay slips and the HMRC notice indicating no amount is due.

Also, notify HMRC that your organisation is dormant for corporation tax purposes if it has ceased trading. If HMRC grants your request, it will issue you a letter stating that your business is exempt from paying corporate tax and submitting annual tax reports.

What are the due dates for corporate taxes in the UK?

The corporation tax returns are due anytime between the fiscal year’s end and the legislation’s due date. Either 12 months after the year-end or three months after receiving a notification to deliver a return from HMRC constitutes the statutory filing date. On the other hand, you have to submit your business tax bill before filing your return.

For companies with profits up to £1.5 million, Corporation Tax is due nine months and one day after the end of the accounting period. Companies with profits over £1.5 million may need to pay in quarterly instalments. If your fiscal year finishes on March 31st, you should submit your tax returns and pay your corporate tax by January 1st of the following year. Companies with annual revenues over 1.5 million euros are required to make quarterly payments of the corporation tax.

The corporation tax in the UK: How to make payment?

You can make the corporation tax obligations in numerous ways and methods. No matter what method you use, you must get the payment to HMRC before the due date or face a penalty. Suppose your payment due date is a weekend or holiday; ensure you pay HMRC on the previous business day.

Here are some of the possible due dates for HMRC payments:

• To make a same-day or next-day payment, use faster payment options like CHAPS, e-banking, etc.
• You can pay at your local bank for three business days, set up a direct debit, or pay online.
• For five business days, you can use the direct debit option.

What will be the late penalty for corporation tax?

You are subject to penalties from HMRC for late filing, late payments, or providing incorrect information. Penalties depend on whether the error was accidental or deliberate and whether it was disclosed voluntarily. Penalties can range from 15% to 100% of the tax due.

Filing tax returns late:

HMRC has established the following penalties for those who submit their corporation tax return late:

• You must pay 100 euros for one day late.
• You must pay an additional 100 euros if you miss the three-month deadline.
• HMRC will estimate your tax bill and provide an additional 10% penalty six months beyond the due date.
• Your projected tax bill will increase by 10% after the 12-month grace period.
• HMRC will hike the 100 euros penalty to 500 euros when you miss the tax return three consecutive times.

Late payments of the corporation tax:

When your tax payments are not on time, you are subject to fines and interest on the money you already own. HMRC can use the following ways to collect overdue taxes, including reimbursement via salary or retirement fund, having debt collectors obtain payment, litigation against you, bankruptcy, and much more.

False information:

Company tax returns that you reveal later to be erroneous may result in penalties from HMRC. The amount you owe depends on whether HMRC feels the mistake was intentional, whether or not you attempted to conceal it, and whether or not you acknowledge the mistake voluntarily before HMRC discovers it.

To that extent, HMRC can make decisions in the following ways:

• You made a mistake; whether you admit it or not, HMRC may add anything from 15% to 30% to your tax bill.
• If the error was intentional but not concealed, the penalties can range from 20% to 70%, and if HMRC finds out, the penalties can range between 35% to 75%.
• If you disclose your mistake, you could have a fine of 30% to 100%, but if you don’t, you face a penalty of 50% to 100%.

In most cases, you must amend your corporate tax return within twelve months after the original filing date. The corporation tax office accepts returns filed electronically. Suppose you find an error in your financial records. In that case, you must promptly notify Companies House in writing that the books are corrected, that the suspension of old books, and that the new books are the official statutory accounts as of the closing date of the previous books.