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Introduction -Corporation Tax (UK)
This is our limited company contractor Corporation Tax guide, which covers the basics of Corporation Tax (CT). Limited company Corporation Tax is a tax for a professional with their own UK contractor limited company. Basically, contractor CT is the main UK contractor limited company tax that you’ll pay each year when you make profits. In this UK company Tax return guide 2023, we look at how to complete a tax return for contractors. In addition, we’ll look at the Corporation Tax return (UK) itself and what to do to complete this for UK contracting professionals. All UK trading companies complete their CT return once per annum and file this along with their full accounts with HM Revenue & Customs (HMRC). Therefore, in this limited company tax guide, we’ll look at how CT works for UK contractors as well as how to do a Corporation Tax return (limited company).
Under the UK tax system, UK individuals file personal tax returns with HMR each year. In addition, they also pay Income Tax on their personal taxable incomes. On the other hand, UK companies file Corporation Tax returns for limited company purposes each year. In addition, businesses pay Corporation Tax on their taxable profits. Further to this, UK limited companies pay CT on their profit to HMRC every 12 months. As a limited company contractor or small company owner, HMRC will issue a notice to deliver a company tax return (UK) each financial year.
The three main duties for a company director each year
When you are a director who is running your own company, you have some annual filing duties. Therefore, every year, your business will have three main duties in relation to company accounts and tax.
File your accounts with Companies House
The reports you file with Companies House are a reduced version from the complete set of annual accounts. This is because Companies House requires less information. As a result, not all of the data from the company’s full accounts are shown on public records. Indeed, the due date for filing is nine months after your company’s year-end. In the case of a company’s first set of accounts, they are due for filing by either twenty-one months after the incorporation date or nine months after the company year end, whichever is the sooner.
File a ltd company tax return and full annual accounts with HMRC
The company’s UK Corporation Tax return (HMRC) is called form CT600. Basically, you have to complete this contractor tax form for your company annually. After completing this, you can then submit Corporation Tax online to HMRC. When we consider completing and filing Corporation Tax, contractor options include doing this yourself or asking your accountant to do it.
When you or your accountant file your company accounts and tax return, how do you do this? Basically, this can be done through specialist online Corporation Tax filing software (UK) or through the HMRC website. In addition, you’ll file your HMRC limited company tax return online along with your company’s (full) accounts with HMRC. What’s more, when you file your company tax return, the due date for the CT600 & company accounts is twelve months after the end of the accounting period to which the limited company tax return (UK) relates.
Pay your contractor Corporation Tax bill to HMRC
It’s key to highlight in this UK tax guide on CT, your company will need to pay its tax bill by the Corporation Tax deadline each year. What’s more, the deadline for paying Corporation Tax to HMRC is nine months and one day after the end of the accounting period to which the payment relates. Indeed, the Corporation Tax due date is always this length of time (9 months and 1 day after the CT period).
Initial thoughts -UK contractor Corporation Tax returns
First thoughts
In this corporate tax guide, it is key to highlight contractor CT is the main limited company tax. Besides this corporate tax (UK), when you run your own company there may be other contractor taxes (UK). In the main, besides Corporation Tax for limited companies, other taxes may include VAT and PAYE/NIC on salaries. What’s more, we have other guides on this website which cover these areas of limited company UK tax.
Contractor Corporation Tax return guide -receive your CT reference number
Nowadays, when you register a new company with Companies House, they’ll inform HM Revenue & Customs (HMRC) of your company’s existence. Then, shortly after incorporation, HMRC will send your Corporation Tax reference number through the post to your company’s registered office. Your CT number is also known as your limited company UTR (Unique Tax Reference) and is unique to your company.
If you’ve recently set up a new UK company and cannot find your CT reference number, you will need to request corporation tax UTR from HMRC. Basically, you can do this with a phone call to HMRC and once you have done this, they’ll post the UTR out to you.
As part of this HMRC company Tax return guide 2023, please note that your contractor Corporation Tax reference has an initial three digits in respect of the CT office. The office is located in the UK area that looks after your company, albeit this seems centralised nowadays. What’s more, there’s also two sets of five digits that make up the full ltd company UTR number. Furthermore, the UK company tax number is shown on:
- The CT600 form which you need to file with HMRC each financial year.
- All correspondence from HMRC. Basically, this will include any HMRC reminders and the annual letter to `deliver company tax return.’ This is an annual notice that informs you that you’ll need to complete a company tax return CT600 (UK).
- Your company’s CT service within your online Business Tax account with HMRC. We recommend that you set up a Business Tax account with HMRC, as part of your company’s initial setup. Once the HMRC account is set up, you can add the Corporation Tax (HMRC) service. This will then allow you to track your company’s liabilities and payments in the future.
Other guides
For ease of reference, we’ve written about limited company taxes and the filing dates for company documents and tax payments. We also have an article which covers what you should consider if you are looking to change your contractor accountant.
Deliver a UK company contractor tax return form
All companies must deliver a CT600 tax return to HMRC each year. What’s more, they should pay Corporation Tax (UK) on their profits, regardless of their size or, indeed, their level of profits.
How much tax does a limited company pay?
As a limited company contractor, your business should record all allowable business expenses. Next, it will deduct the total of these expenses from business income to arrive at a profit in the company accounts. You need to add certain expenses (such as entertainment, penalties, fines etc.) back on to the profit in the company tax calculation to arrive at a revised profit, as these expenses are not tax-deductible. We then apply the appropriate ltd tax rate to the adjusted profit to calculate the tax on limited company profits. In turn, this is your company’s tax bill.
Common questions
Many new UK contractors or small limited company owners will have questions around Corporation Tax when they first start their own business. Therefore, such questions and thoughts will include:
- How do you work out Corporation Tax?
- How to calculate Corporation Tax (UK)?
- What is a CT600?
- How to complete CT600?
- When is CT600 due?
- How to file Corporation Tax?
- How to work out Corporation Tax (UK)?
- When is Corporation Tax due (UK)?
- When do you pay Corporation Tax (UK)?
- How to submit Corporation Tax return?
- Do you pay Corporation Tax on a loss?
In this guide, we will look at all of the above and consider how CT works for UK contractors and small business.
UK contractor Corporation Tax guide & initial considerations
Current contractor CT rates
How much is Corporation Tax for a limited company (UK)? Basically, the annual calendar year ends on 31 December, whereas the company tax year in the UK ends on 31 March.
The current rate of Corporation Tax (UK) for your UK contracting company is 19% upon the first £50K of profits (please see the next changes for how much tax you pay on profits above this amount). In the company tax years ended 31 March 2022 and 2023, all companies will pay Corporation Tax at this rate on their taxable profits. In previous years, large companies paid a higher rate of CT than smaller companies. 1 April 2015 was the date that HMRC lined up the rates for small and large companies.
New changes for Corporation Tax in UK
Following the March 2021 Budget, the Chancellor confirmed an increase in the CT rate. This change comes after all companies have had the same CT rate for several years. Furthermore, this increase was confirmed in the March 2023 Spring Budget. Therefore, from 1 April 2023, the 19% rate will increase to 25% on profits above £250,000, with marginal relief for profits between £50,000 and £250,000.
This means that a company with profits:
- Up to £50,000 -will pay Corporation Tax at 19%.
- Between £50,000 and £250,000 -will pay 19% on the first £50,000 and a marginal rate on the remainder.
- Profits above £250,000 -will pay 25% on all of the profits.
Fiscal years
The company tax year or `fiscal year’ runs from 1 April to 31 March. The personal tax year runs from 6 April to 5 April.
Depending on your company year-end, your `fiscal year’ may differ from your company’s accounting year. If the CT rates change following a budget, you will apportion your profits accordingly. This means the profits will be apportioned on the HMRC Corporation Tax return between the company tax years. As a result, the profits will be taxable in your company contractor CT return, partially at different rates.
UK company tax return guide 2023 & what else to consider
Your company year-end
This Corporation Tax guide now looks at the company year-end for your small business. On the day your company is set up, the year-end will automatically default to the end of the month in the following calendar year. Therefore, if you incorporate your business on 26 June 2023, the year-end would default to 30 June 2024.
In the above example, you may prefer a different company year-end for your business. If this is the case, you or your accountant can submit a form to Companies House to request this change. It is also possible to change your business year-end in the future too. You can, however, only `extend’ your accounting period once every five years. In contrast, if you shorten your business year-end this has no restrictions.
Calculate your company profits which are subject to CT
Our contractor HMRC CT600 return guide now looks at how to calculate your company’s profits and your contractor CT bill.
At the end of every financial year for your company, you must work out what profits are subject to UK contractor Corporation Tax. Indeed, after you have calculated the profits, you can then work out Corporation Tax due on these. Basically, to do this, you will perform a company tax calculation and accountants call this a tax computation. Next, you will report these on the company’s UK Corporation Tax return (contractor CT return) form CT600. In fact, in this CT600 form guide it is key to mention further information and CT600 guidance are shown on the HMRC website. There is also a CT600 company tax return guide available online from HMRC.
As part of this contractor Corporation Tax return guide, when completing the limited company tax return (form CT600), your accountant will add up all the business income. They will then deduct the sum of any business expenses, including salaries. In the company tax workings, they will add back to the profit any disallowable expenses for Corporation Tax (depreciation, entertaining costs, penalties or fines). Indeed, disallowable expenses (HMRC) are any costs that are not `wholly and exclusively’ for the purpose of your trade or business and therefore cannot be claimed as tax deductions. Next the business will deduct from the profit any income that is not taxable. Finally, they will deduct capital allowances and any other tax reliefs to arrive at taxable profit. The taxable profit is what is subject to CT and this is reported on the Corporation Tax CT600 return to HMRC.
Fiscal year and rate change
As part of this HMRC CT600 guide 2023, if the business year spans the `fiscal year’ (see above), and the rate has changed, you will apportion your profits over the appropriate number of days. You can then work out the tax at the applicable rates and arrange to pay the CT in due course.
An example of UK contractor Corporation Tax (limited company)
Let’s assume your UK contracting company year-end ends on 30 June.
| The accounts covering the year to 30 June 2024 will have: | |
| a) | 274 days (1 July 2023 to 31 March 2024) profits taxable at the appropriate rate(s) in 2023/24. |
| b) | It will also have 91 days (1 April 2024 to 30 June 2024) profits taxable at the appropriate rate(s) in 2024/25. |
| Therefore, for both of the above tax periods the profits will be taxable at either: | |
| a) | All at 19%. |
| b) | The first £50K at 19% and the rest at a marginal rate. |
| c) | All at 25% (see above). |
| To reiterate, if the profits are no more than £50,000, the tax rate is 19%. | |
File tax return online (limited company)
In this UK contractor Corporation Tax guide, let’s now look at how to file the contractor company tax return form CT600 online. Once your company’s accounts and the Corporation Tax computations are final, you or your accountant can file your Corporation Tax return online along with the company accounts. With modern technologies you can now file your CT600 form online via specialist online Corporation Tax software (UK) or even the HMRC website for more simpler cases. As part of the process when you file CT600 online, you should check that all of the numbers are correct before you go ahead and submit CT600 return and accounts to HMRC.
The CT return CT600 filing deadline
The CT600 deadline is 12 months after your business year-end. Therefore, if your company’s year-end is 30 June 2024, your contractor Corporation Tax deadline with HMRC is 30 June 2025.
Corporation Tax payment deadlines are nine months and one day after the end of an accounting period. Therefore, if your company year-end is 30 June 2024, the HMRC Corporation Tax payment date is 1 April 2025.
Pay Corporation Tax to HMRC
In today’s world, most UK contracting companies opt to pay Corporation Tax online. What’s more, you can still pay at the Post Office or Bank counter, however paying via cheque through the post is no longer available. If you pay online via the HMRC website or through your company’s internet banking it is much quicker. Therefore, when we look at the most common methods on how to pay Corporation Tax, a company can pay CT in several ways. To summarise, most limited company contractors now pay their CT by internet banking; however, if you pay by card:
- There is a fee if you pay by corporate credit card or debit card.
- There is no fee when you pay by personal debit card.
- You cannot pay with a personal credit card.
Company accounting tax periods can only cover a maximum of twelve months in length. When your company is set up, it could have a period longer than twelve months. If you extend your company year-end at some future point, the period could be longer than twelve months. In this case, the company will have two Corporation Tax accounting periods and will need to file two CT600 forms. The first return will be for the first twelve months of your accounting period, and the second will be for the remaining days up to the business year-end.
In the above example, if your company commences trade on the actual day that it was incorporated, which was 26 June 2023, it will complete two company tax returns which cover:
- The twelve months to 25 June 2024.
- The period from 26 June 2024 to 30 June 2024.
Other considerations
UK company tax return guide 2023 -Corporation Tax penalties and how they work
Next in this UK contractor Corporation Tax guide, we now look at CT600 late filing penalties. When you file your company’s CT return, the due date is twelve months after your company year-end.
If the company misses the Corporation Tax deadline, the following CT600 penalties will apply:
| One day late | £100 penalty |
| Three months late | A further £100 penalty (£200 in total) |
| Six months late | 10% of the unpaid amount |
| Twelve months late | A further 10% of any unpaid tax (20% in total) |
Contractor Corporation Tax (UK) & CT losses
There is no CT on company losses i.e., a company only pays CT on its trading profits. Therefore, when a company makes a trading loss, it can either:
- Carry back the loss against profit for the previous twelve months; or
- Carry the loss forward against future profits.
A loss can be carried forwards indefinitely to be set against future profits.
When a company closes down, it can claim `terminal loss relief.’ This means It can carry back any losses against profits in the three preceding years before the final accounting period.
Final thoughts
This Corporation Tax guide looks at most areas that may affect your contracting limited company in terms of CT. As mentioned earlier, CT is your main contractor tax (UK). Your contractor accountant will typically handle the preparation of this. In addition, they will also a HMRC CT600 return for your company each financial year. On the other hand, you can arrange to pay your company’s tax liability. Alternatively, if you plan to file the HMRC corporate tax return yourself, the above is a good guide which explains this process.
This limited company tax guide explains the process when you complete a contractor Corporation Tax return (limited company). In addition, we show that this is not always straightforward. In fact, it will be more complex if there has been a change in CT rates or capital allowances. What’s more, the process of filing a UK corporate tax return to satisfy HMRC requirements is not straightforward. They now require specific `tagging’ for the figures in the accounts. Indeed, accountants use specialist HMRC Corporation Tax online filing software to do this. Therefore, if you have an excellent accountant to look after you, they will take care of this.
Link to Contractor Advice UK group on
