According to their yearly profits, all UK businesses are liable to corporation tax. These corporation tax works in a manner very similar to that of personal income tax. The corporate tax rate in the UK since April 2016 has been 19% for all limited liability firms. But this tax rate in the UK for 2023-2024 is 25%.
Companies in the UK, unlike individuals, are not entitled to a tax exemption. Therefore, their entire profit is subject to taxation in the UK, depending upon their earnings. But still, there are ways to lower your taxes and boost savings. You must file the company tax returns form CT600 annually with HMRC. Keep reading to learn more about calculating the corporation tax for your business, filing a corporation tax return, and much more.
Who is responsible for paying corporate taxes?
All limited liability corporations in the UK are primarily responsible for paying the corporate tax. In addition, clubs, associations, business groups, housing associations, co-operatives, etc., are liable to the payment of corporate tax if they still need to be formally organised. Moreover, corporation tax is not necessary for sole proprietorships and partnerships.
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.
How to sign up with HMRC?
When you start the business in the UK, you have three months from the operations to notify HMRC that your company is a limited liability corporation. Any business needs to know about the specifics of the industry. You can check the official HMRC website for complete information about the types of business, such as active, trading, non-trading, and dormant.
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.
If your company profits are up to 1.5 million euros, then you are subjected to corporation tax, which you must pay within nine months & one day after the end of the financial year. 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 subjected to a fine from HMRC if you are late filing your tax return, completing your tax bill, or providing false information.
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.
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.