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An Introduction to Corporation Tax

All companies that generate taxable income in the UK must register with HMRC for Corporation Tax and file Company Tax Returns and accounts every year. This post will talk you through what you need to do and when you need to do it.

Does my company have to pay corporation tax?

If your company carries on any kind of business activity, or receives any form of income, it is liable to pay Corporation Tax on all taxable profits. Business activities include:

  • Buying and selling goods or services
  • Leasing or buying property
  • Selling assets
  • Managing investments and receiving dividend payments
  • Paying dividends
  • Earning interest
  • Paying employees and directors
  • Paying bank charges and fees
  • Paying legal or accountancy fees
  • Receiving income from any other source

If your company is not involved in any activities such as this, it will be classed as dormant. If this happens, Companies House will be notified through your Confirmation Statement and annual accounts. If your company is dormant and you do not need to pay Corporation Tax, you will still need to fill out the “Nil to pay form”.

How do I register and when should I do it?

Companies must register with HMRC for Corporation Tax no later than 3 months after starting any kind of business activity. To register, you will need to sign up for HMRC’s online service Government Gateway. You will then need to provide the following details:

  • Company name
  • Company Registration Number (CRN) - this can be found on your certificate of incorporation
  • Unique Taxpayer Reference (UTR) - HMRC will send this to you shortly after company formation
  • Start date of trading activity - this will determine your accounting period for Corporation Tax
  • Main trading address where the majority of business activities are carried out
  • Principal business activities accrued out - this is done through using a Standard Industrial Classification (SIC) code
  • Accounting reference date (ARD) - this is the date the annual accounts are made up to, which usually falls on the anniversary of the last day of the month of company formation.

Once your registration is complete, HMRC will send information to your registered office. This will include the deadlines for paying Corporation Tax and filing Company Tax Returns and annual accounts.

Do I have to file a Company Tax Return?

If your company is active for all or part of the Corporation Tax period, you must prepare a Company Tax Return (form CT600) and annual accounts for HMRC. You must deliver these no later than 12 months after the end of the accounting period.

Your company’s accounting period will begin on the day that it becomes active for Corporation Tax, this may or may not be the day that it is incorporated at Companies House. Accounting periods run for a maximum of 12 months, ending on the Accounting Reference Date of your annual accounts.

Do dormant companies have to pay Corporation Tax?

Calculating tax on a calculator

If the company has been dormant from the date of incorporation for the entire duration of the accounting period, they do not have to pay Corporation Tax. If the company has received, or spent money, or has become involved in any business activities, they are no longer classed as a dormant company.

How and when to pay Corporation Tax

After you have filed your tax return, either through accounting software or through HMRC’s online Corporation Tax service, the deadline for paying Corporation Tax is 9 months and 1 day after the end of the accounting period.

Late filing fees

Failure to deliver a Tax Return and full accounts by the filing deadline will result in a flat-rate penalty of £100, with a further penalty of £100 if the return is more than 3 months late.

If a company files its Tax Return late for 3 or more consecutive accounting periods, the flat-rate will rise to £500, with an additional penalty of £500 being applied if it is filed more than 3 months late.

If the return is between 18-24 months late, they incur a fine of 10% of the unpaid Corporation Tax liability. Returns that are outstanding for more than 24 months will face an additional 10% charge on the unpaid Corporation Tax.

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