What is Corporation Tax?
I’m sure you already know the answer. Is a tax you must pay on profits from doing business as a limited company, foreign company with a UK branch or office or a club, co-operative or other unincorporated association.
What do you need to do?
1. Register for Corporation Tax (see my article on how to register)
2. Keep accounting records (see my articles on tips how keep records)
3. Prepare a Corporation Tax Return and file it with HMRC, usually 12 months after the end of your accounting period.
4. Pay Corporation Tax or report if you have nothing to pay. Usually 9 months and one day after the end of your accounting period (if your taxable profit is less than £1.5m). For example, if you prepare your statutory accounts for a period from say 1st Apr 2017 to 31 March 2018, you will have to pay your Corporation Tax by 1st January 2019 and file your Corporation Tax Return by 31st March 2019.
Your accounting period is normally the same 12 months as the financial year covered by your annual accounts (see my example above).
Profits you pay tax on are:
– Trading profits (profits from doing business)
– Selling assets for more than their costs (chargeable gain)
If your company is based in the UK, you pay CT on all its profits from the UK and abroad. If your company isn’t based in the UK but you have an office or branch here, you pay UK Corporation Tax on profit from your UK activities.
Corporation tax rates
Current rate for Corporation Tax from 1st Apr 2017 is 19%. But for previous years the rates were different, for example 2015 and 2016 the main rate was 20%.
Remember, you pay Corporation Tax at the rates that applied in your accounting period. For example, if your accounting period was 1st Aug 2016 to 31st July 2017, you will pay Corporation Tax at 20% for period between 1st Aug 2016 to 31st March 2017 and 19% for period between 1st Apr 2017 and 31st July 2017. You can deduct the costs of running your business from your profits when you prepare your company’s accounts.
Anything you or your employees get personal use from must be treated as a benefit!
Some expenses are not allowed for Corporation Tax purposes, for example client entertainment – add those expenses back when calculating your taxable profit. It doesn’t mean you cannot spend money entertaining clients, it just means you cannot deduct it from your profits when calculating taxable profits.
There are some reliefs you might be interested in, depending on your business such as:
– R&D relief
– The patent box
– Relief for creative industries
– Disincorporation relief
A lot of my clients have not been claiming some reliefs as they were not even aware they exist! So have a look!
Unless you know what you are doing, I wouldn’t suggest preparing your own returns, talk to an accountant.
As always, if you have any questions, I would love to hear from you!
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