This is my Corporation Tax guide for you if you are a director who is running your own company. Every year you will need to ensure that your business pays the correct Corporation Tax (CT). The tax is payable to the tax office each year. You work your company tax bill out by deducting your allowable business expenses from your business income.
All companies will pay CT on their profits, regardless of their size or, indeed, their level of profits.
Nowadays, when you register a new company with Companies House, they will inform HM Revenue & Customs (HMRC) of your company’s existence. They will then send your CT reference through the post to your company’s registered office. The CT reference has three digits which relate to the CT office. The office is in the area in the UK that looks after your company. There are a further two sets of five digits that make up the company’s UTR (Unique Tax Reference). The UTR will show on the company Tax Return (CT600) that needs filing with HMRC each year.
I have also for the ease of reference, written about limited company taxes and the filing dates for official documents and tax payments. I have detailed what you should consider if you are looking to change contractor accountant.
Current rates & fiscal years
The current rate of Corporation Tax is 19%, and in 2021 all companies now pay this rate on their profits. In previous years gone by, large companies paid a higher rate of CT than smaller companies. 1 April 2015 was the date that HMRC lined up the rates for both small and large companies. Please note, following the March 2021 Budget, the Chancellor has confirmed an increase in the corporation tax (CT) rate from 19 to 25 percent with effect from 1 April 2023. The 25% rate will apply to profits above £50,000 with marginal relief for profits of up to £250,000. This means that profits up to £50,000 will pay Corporation Tax at 19%, profits between £50,000 and £250,000 will pay 19% on the first £50,000 and 25% on the remainder and profits above £250,000 will pay 25% on all of the profits.
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.
Finally, the `fiscal year’ may be different from your company’s accounting year. If it is and the CT rates have changed following a budget, you will apportion your profits accordingly. The profits will then be taxable partially at different rates.
In my Corporation Tax guide, we now look at your company year end. When you set up your company, the year-end will auto default to the end of the month in the following calendar year. Therefore, if your business were set up on 26 June 2021, the year-end would default to 30 June 2022.
You may prefer to have a different company year-end for your business. If this is the case, you or your accountant can submit a form to Companies House requesting 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, shortening your business year-end has no restrictions.
Calculating your company’s profits subject to CT
Every year you need to work out your company’s profits that are subject to Corporation Tax. Your accountant will add up all of the business income. They will then deduct from this the sum of any business expenses, including salaries. They will also add back on to the profit any dis-allowable expenses (depreciation, entertaining costs, donations that are not to UK registered charities etc) and deduct from the profit any income that is not taxable. Finally, they will then deduct any capital allowances and any other reliefs.
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 accordingly.
Expanding on the above, let us assume your company year-end ended on 30 June. The accounts covering the year to 30 June 2022 will have 274 days’ (1 July 2021 to 31 March 2022) profits taxed at either a) 19% or b) part at 19% and part at 25% (see above) or c) all at 25%. It will also have 91 days’ (1 April 2022 to 30 June 2022) profits taxed at either a) 19% or b) part at 19% and part at 25% or c) all at 25% (see above). To reiterate, if the profits are no more than £50,000 the tax rate will be 19%.
The CT Tax Return and CT payments and periods
The CT Return (CT600) filing deadline is 12 months after the end of your business year-end. Therefore, if your company’s year-end ended on 30 June 2022, the due date for filing the CT return with HMRC would be 30 June 2023.
The payment of CT is due nine months and one day after the end of an accounting period. Therefore, if your year-end ended on 30 June 2022, the due date for payment of the CT to HMRC would be 1 April 2023.
A company can pay CT in several ways, but paying via cheque through the post is no longer available. Most contractors now pay their CT by internet banking.
Company accounting tax periods can also only cover a maximum of twelve months in length. When you set up r company is set up your company it could have a period of 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 would need to file two CT returns. The first return would be or the first twelve months, and the second return would be up to the business year-end.
In my 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 is late filing the CT return the following fines apply:
- One day late: £100 penalty
- Three months late: A further £100 penalty
- Six months late: 10% of the unpaid amount (as estimated by HMRC)
- Twelve months late: A further 10% of any unpaid tax
When a company makes a loss, it can either:
- carry back the loss against profit for the previous twelve months; or
- carry the loss forward against future profits.
When a company is closing down, it can claim `terminal loss relief.’ It can then carry back any losses against profits in the three preceding years.
My Corporation Tax guide takes a look at most of the areas that may affect your company. Your contractor accountant will handle the preparation and filing of your company’s Corporation Tax return (form CT600). The process in terms of completing this is not always straightforward. It can even be more complex if tax rates or capital allowances have changed. Also, the actual process of filing to satisfy HMRC requirements is now not straightforward, either. The tax office now requires certain `tagging’ for the figures in the accounts and accountants use specialist software to do this. If you have a good accountant looking after you, they will take care of this.
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