What is Corporation Tax, and how do you account for it?

Corporation tax is charged on the profits of all UK-based companies, such as limited companies and foreign companies with offices or branches in Britain.

It is also levied on organisations such as co-operatives, clubs and unincorporated organisations like sports clubs.

Corporation tax (CT) is charged on your limited company’s profits. In practice, that’s any money made from the day-to-day costs of doing business (known as “trading profits”), as well as any investments owned by your business.

The tax is also levied on any assets which are sold for an amount more than they cost, which is known as “chargeable gains”.

How does it apply to limited companies?

Historically, there have been two different rates of CT – a higher rate for larger businesses, and a lower rate for smaller ones.

However, since 2015, the two rates have been aligned, and there is a single rate which applies to all companies, regardless of size.

For the 2021/22 and 2022/23 tax years, organisations eligible for corporation tax pay 19% of their profits to the Exchequer.

The current Corporation Tax system will change after April 2023. Read more here.

How do you register to pay it?

You have to register your company to pay Corporation Tax within three months of starting to carry out any business. The definition of “starting to do business” can include a wide range of activities, including advertising, buying and selling, and even renting a property.

It’s a good idea to take action as soon as you can, as you could face a fine or a penalty if you don’t register your new company for corporation tax in time.

Following incorporation, HMRC will automatically send you a Corporation Tax registration form (CT41G), and a Unique Taxpayer Reference (UTR) to your company’s registered address.

You will need your company’s UTR, company registration number (on your Companies House paperwork), the date when you started trading, and the date your annual accounts are made up to.

The vast majority of limited companies hire qualified accountants to take care of this type of paperwork. Unless you have some kind of accountancy training, we would advise you to use an accountant to help you set up your tax affairs. They will be able to register your company for all the other key taxes – including VAT, and your payroll.

When is it due?

The CT600 Corporation Tax Return (which outlines how much profit your company has made during the tax year) must be filed within 12 months of your limited company’s accounting period.

Confusingly though, any tax owed must be paid earlier – within 9 months and a day of the end of your accounting period.

If your profits are above £1.5m (unlikely for most of our readers), you’ll be required to pay your CT bill in installments.

There are a number of ways to pay your CT liabilities, including telephone or online banking, Bacs, or direct debit.

You can also pay online via debit or credit card, as well as at a local branch of the Post Office or your local building society or bank.

For further information, try the Government’s guides to Corporation Tax.

April 2023 Corporation Tax rise

From April 2023, the main rate of CT will rise from 19% to 25%.

The current 19% rate remains for profits of £50,000 or less, with the full 25% main rate kicking in after profits reach £250,000.

Between these thresholds, a system or marginal relief will apply.

Find out more in our guide to the April 2023 Corporation Tax hike.

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