What is corporation tax?

If you own a business that is making profit then you will have to pay corporation tax.  For Limited companies in the UK the corporation tax is 19% which has to be paid on the companies annual profits. 

You must pay corporation tax on profits from doing business as:

• a limited company
• any foreign company with a UK branch or office
• a club, co-operative or other unincorporated association, eg a community group or sports club

Before April 2016 the corporation tax rate varied on how well the company was doing and depending on the companies profits.  The corporation tax rate now depends on the profits that are taxable but there is a number of company expenses and deductions that can help to reduce your yearly tax bill.

If you are a director then it is your responsibility to ensure your corporation tax form, CT600, is completed and your tax bill has been paid every year, even if you hire an accountant to calculate this for you.

If you have a dormant company and there has been no trading or investing throughout the year, you still have to submit a CT600 to HMRC.

Setting up Corporation Tax returns

Once you have set up your Limited company via Companies House you have to notify HMRC within 3 months that your Limited company is active.

When filling out your CT600 form you must calculate your own accounts and submit your own corporation tax which is not like being self-employed when HMRC calculate this for you.  HMRC will let you know whether your tax returns are correctly filled out and that the tax submitted is correct.  It is once again down to the director to pay the tax bill.

Late penalties and fines for Corporation Tax

HMRC will start to fine you if you are late submitting your tax return, paying your tax bill or you have sent inaccurate information.

HMRC issues fines for late penalties such as:

• One day – £100
• Three months – Another £100
• Six months – HMRC will estimate your bill and add a 10% penalty onto what it thinks your unpaid tax will be
• 12 months – another 10% is added to your estimated tax bill

If you do not pay the money owed to HMRC then they can begin enforcement action which can be:

• collecting owed payments through your earnings or pension
• asking debt collection agencies to collect the money
• selling things you own (in England, Wales or Northern Ireland)
• taking money from your bank or building society accounts (in England, Wales or Northern Ireland)
• taking you to court making you bankrupt or closing down your business.

Reducing your Corporation Tax liabilities?

There are ways to reduce your companies corporation tax liabilities such as:

• the cost of incorporating your limited company
• premises costs, like rent and utility bills
• salaries and other staff costs
• the cost of stock or raw materials
• office costs, like stationery and phone bills
• travel and accommodation costs for business trips (but not commuting costs)
• legal and financial costs, like accountancy fees
• advertising and marketing costs

You can also host an annual business event such as a Christmas party as long as the cost does not exceed £150 per person.

Contact Tax Advisory UK today and we will arrange a meeting with some of the UK’s most qualified and experienced Chartered Tax Advisors to help with your Corporation Tax inquiries.  Please call 07908 074954.