What is Corporation Tax?
Corporation Tax is paid on any taxable profits that your company has. You'll need to pay Corporation Tax if you're set up as a limited company, charity, association or society. Think of it as the equivalent to income tax.
So what is taxable profit?
Taxable profit can include your trading profits (also known as gross profit) and investment profits. Also included are capital gains, which is the profit made on the sale of a property or investment.
Who needs to pay Corporation Tax?
All UK-based companies will need to pay Corporation Tax on all taxable profit, even if the profit only comes from sales to people in other countries.
If the company is based outside of the UK but still has a UK office, then Corporation Tax will still need to be paid, but only on the taxable profits arising from the UK sales and activities.
Corporation Tax rates
For the current financial year (2018/19) the Corporation Tax rate is 19%. It is set to remain at this level until 2020/21 where it's set to drop to 17% (as set out in the 2016 Budget)1.
Claiming Corporation Tax relief
If your company has made a loss while trading - then you could claim a relief from Corporation Tax.
You can claim a relief by offsetting your loss against other business profits from the same period. This can then be carried back or forward into other accounting periods.
Other reliefs are available and can be found on the Gov.uk website.
Who is responsible for filing Corporation Tax returns?
If you have an accountant, it will be one of their key jobs for you. However, the ultimate decision and responsibility of what gets submitted is up to you as a director. So make sure that:
- Your company's Corporation Tax liability is accurate
- Your Corporation Tax return is filed on time; and
- You've paid all outstanding Corporation Tax to HMRC
Corporation Tax self-assessment
You'll need to file a Corporation Tax return (form CT600) every year. You will need to include the following when filling it out:
- Your company name and registration number
- Your registered office
- Your tax reference number
- Details about your turnover and profit for the year
- Your tax calculation
- Details for allowances and reliefs.
When do I need to file by?
You can submit your Corporation Tax return any time between your company's year-end date and your statutory filing date. There are two things to remember though:
- If your CT600 is filed late, or is inaccurate, you will be charged a penalty. You will have to pay this even if you file through an accountant.
- You need to pay your liability electronically. If you pay late, you will be charged interest.
Note: you legally have to keep all company records for at least six financial years. This includes invoices, receipts, workings and tax-related paperwork. It is acceptable to store them electronically (such as scans), provided they are easy to read.
Our sister company QuickFile can help with this.
1. Further Reading: Gov.uk - Business Tax Roadmap