Corporation Tax
Corporation Tax is the tax paid by Limited Companies on the profits they make. Also payable by some organisations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies. Once you establish a Limited Company, you must register your business for the payment of corporation tax within 3 months. It is a mandatory requirement for every Limited Company to complete its company corporation tax return each year. The Corporation tax is to be paid within a period of nine months and one day of the company’s normal due date.
Taxable profits for Corporation Tax include:
Profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently.)
Capital Gains - known as 'chargeable gains' for Corporation Tax purposes
Smaller companies, who make a profit of up to £300,000, are liable to pay a corporation tax of 20%, while the larger companies which garner a profit of £ 1.5 million or more, are required to pay a corporation tax of 21%. As a UK based company, you are liable to pay corporation tax every year, irrespective of the location where the profits are accumulated.
Companies House tells HMRC when any limited company is formed and registered with them. But if you use the Companies House Web Incorporation Service and your company is 'active' at the time you incorporate it, for example it has started trading or receiving income, you can choose to supply the statutory information you need to give HMRC when you become active at the same time.
HMRC uses the information they receive from Companies House to set up a computer record for your company and allocates it a reference number known as a Unique Taxpayer Reference (UTR). They then send form CT41G (Corporation Tax - Information for New Companies) to your company's registered office. This form includes your company's UTR so please keep it safe as you will need it to contact HMRC. It also tells you what you need to do if your company has become 'active' and suggests other tax implications your company may need to consider.
If you are the Director of a Limited Company, you may increase your net earnings by opting to pay yourself a low director’s salary, compensating the reduction through dividends. This can achieve an overall reduction in the total taxes you pay, including a reduction in the amount of National Insurance payable. Achieving a careful balance between the salary you pay yourself and dividend payments ultimately leads to maximum net earnings and minimum tax rates.
As a part of a Limited Company you may also choose your company’s accounting year end carefully. There are various factors to consider before deciding on a date for your company’s year-end. Thinking in terms of the payment of corporation tax, you may choose a suitable date for the accounting year-end that does not pressurises your cash flow.
You are also required to pay your personal tax bills on the 31st of July and the 31st of January. Hence, if you choose a year-end date- with the due date for the payment of corporation tax falling nine months and a day after the scheduled dates of year-end- which clashes with the dates for your payment of personal taxes, there are chances that your cash flow might see some difficulties and will not be as smooth as expected.
Financial year-end and accounting year-end are also of considerable importance, in the context of the payment of corporation tax. A financial year spans over a period of 12 months, ending on 31st of December each year. Whereas, an accounting year also spanning over a period of 12 months, may end on the last day of any month except for December.
The accounting year is also divided in to four measurable quarters to facilitate the company to assess its financial progress and stay updated with the payments it has made and those that are due.
For more information, seek professional guidance from a Qualified Accountant.
More information on Corporation tax can also be found on the HMRC website.
Taxable profits for Corporation Tax include:
Profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently.)
Capital Gains - known as 'chargeable gains' for Corporation Tax purposes
Smaller companies, who make a profit of up to £300,000, are liable to pay a corporation tax of 20%, while the larger companies which garner a profit of £ 1.5 million or more, are required to pay a corporation tax of 21%. As a UK based company, you are liable to pay corporation tax every year, irrespective of the location where the profits are accumulated.
Companies House tells HMRC when any limited company is formed and registered with them. But if you use the Companies House Web Incorporation Service and your company is 'active' at the time you incorporate it, for example it has started trading or receiving income, you can choose to supply the statutory information you need to give HMRC when you become active at the same time.
HMRC uses the information they receive from Companies House to set up a computer record for your company and allocates it a reference number known as a Unique Taxpayer Reference (UTR). They then send form CT41G (Corporation Tax - Information for New Companies) to your company's registered office. This form includes your company's UTR so please keep it safe as you will need it to contact HMRC. It also tells you what you need to do if your company has become 'active' and suggests other tax implications your company may need to consider.
If you are the Director of a Limited Company, you may increase your net earnings by opting to pay yourself a low director’s salary, compensating the reduction through dividends. This can achieve an overall reduction in the total taxes you pay, including a reduction in the amount of National Insurance payable. Achieving a careful balance between the salary you pay yourself and dividend payments ultimately leads to maximum net earnings and minimum tax rates.
As a part of a Limited Company you may also choose your company’s accounting year end carefully. There are various factors to consider before deciding on a date for your company’s year-end. Thinking in terms of the payment of corporation tax, you may choose a suitable date for the accounting year-end that does not pressurises your cash flow.
You are also required to pay your personal tax bills on the 31st of July and the 31st of January. Hence, if you choose a year-end date- with the due date for the payment of corporation tax falling nine months and a day after the scheduled dates of year-end- which clashes with the dates for your payment of personal taxes, there are chances that your cash flow might see some difficulties and will not be as smooth as expected.
Financial year-end and accounting year-end are also of considerable importance, in the context of the payment of corporation tax. A financial year spans over a period of 12 months, ending on 31st of December each year. Whereas, an accounting year also spanning over a period of 12 months, may end on the last day of any month except for December.
The accounting year is also divided in to four measurable quarters to facilitate the company to assess its financial progress and stay updated with the payments it has made and those that are due.
For more information, seek professional guidance from a Qualified Accountant.
More information on Corporation tax can also be found on the HMRC website.
