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 the main type of tax for a professional with their own UK contractor limited company. In addition, it is one of their main contractor taxes. In this company Tax return guide 2023, we look at how CT works in general as well as the Corporation Tax return (UK) itself for UK contracting professionals. All UK companies complete their CT returns once per annum and file these with HM Revenue & Customs (HMRC). In this guide we will 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 pay Income Tax on their personal taxable income. On the other hand, UK companies 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 each year.
The three main duties for a company director each year
When you are a director who is running your own company, every year, your business will have three main duties in relation to company accounts and tax.
File a ltd company tax return and full annual accounts with HMRC
The company’s UK Corporation Tax return (HMRC) is called form CT600. When you or your accountant file your company accounts and tax return, this can be done through specialist online software or through the HMRC website. You will file your limited company tax return online along with your company’s (full) accounts. Basically, the due date is twelve months after the end of the accounting period to which the CT return relates.
Pay your Corporation Tax bill to HMRC
Your company will need to pay its tax bill by the Corporation Tax deadline. What’s more, the payment is due nine months and one day after the end of the accounting period to which the payment relates.
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, as mentioned, 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.
Initial thoughts -contractor Corporation Tax returns
Contractor Corporation Tax return guide -receive your CT reference number
Nowadays, when you register a new company with Companies House, they will inform HM Revenue & Customs (HMRC) of your company’s existence. Then, shortly after incorporation, HMRC will send your CT reference number through the post to your company’s registered office.
As part of this company Tax return guide 2023, please take note that the Corporation Tax reference has an initial three digits related to the CT office. The office is located in the UK area that looks after your company, albeit this seems centralised nowadays. What’s more, two sets of five digits make up the company’s actual UTR (Unique Tax Reference). Furthermore, the UTR will show on:
- The CT600 form which you need to file with HMRC each year.
- All correspondence from HMRC. This will include any reminders and the annual letter to `deliver company tax return.’ This is an annual notice that informs you that you will need to complete a company tax return CT600.
- Your company’s CT service within your online account with them. It is recommended 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 service. This will then allow you to track your company’s liabilities and payments in the future.
For ease of reference, we have written about limited company taxes and the filing dates of official 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 company tax return
All companies must deliver a company tax return CT600 to HMRC and 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 will subtract all allowable business expenses from business income to arrive at a profit in the company accounts. Certain expenses (such as entertainment, penalties, fines etc.) will need adding back on to the profit in the company tax workings to arrive at a revised profit, as these expenses are not tax-deductible. The appropriate ltd tax rate is applied to the adjusted profit to calculate the tax on limited company profits. In turn, this is your company’s tax bill.
UK contractor Corporation Tax guide & initial considerations
Current 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 profits are taxed 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
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.
Notably, the `fiscal year’ may differ from your company’s accounting year. If the CT rates have changed 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 the company CT return, partially at different rates.
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
This contractor CT600 return guide now looks at how to calculate your company’s profits and the CT bill.
Every accounting year, you must work out your company’s profits which is subject to Corporation Tax. Next, you will report these on the company’s UK Corporation Tax return (CT return) which is called form CT600. 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 Corporation Tax return guide, when completing the CT 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 (depreciation, entertaining costs, penalties or fines). They will also deduct from the profit any income that is not taxable. Finally, they will deduct capital allowances and any other tax reliefs.
As part of this HMRC CT600 guide, 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
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 contractor Corporation Tax guide, let’s now look at how to file the company tax return. Once your company’s accounts and the Corporation Tax computations are final, you or your accountant can file your limited company tax return online along with the company accounts. With modern technologies you can now do this via specialist online software or even the HMRC website for more simpler cases. As part of the filing, you should check that all of the numbers are correct before you submit the 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, the 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.
Other considerations
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.
Company Tax return guide 2023 -Corporation Tax penalties and how they work
In this Corporation Tax guide, we now look at CT 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 fines 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
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 of the areas that may affect your contracting business or small limited company in terms of CT. As mentioned earlier, CT is one of your main contractor taxes. Your contractor accountant will typically handle the preparation of and file a form CT600 for your company each year whilst you can arrange to pay your company’s tax liability.
The process when you complete a Corporation Tax return (limited company) is not always straightforward. In fact, it will be more complex if there has been a change in CT rates or capital allowances. In addition, the process of filing to satisfy HMRC requirements is not straightforward. They now require specific `tagging’ for the figures in the accounts, and accountants use specialist software to do this. If you have an excellent accountant to look after you, they will take care of this.
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